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US Economy excelling 3 percent growth remains out of reach

27 January 2018

The report said real gross domestic product increased by 2.6% in the fourth quarter compared to the 3.2% growth seen in the third quarter.

"We're not concerned about any one quarter which could be revised up or down", he said.

That is partly because of the weakness of the pound making import prices higher and squeezing consumers, and partly because of business uncertainty.

Output has risen an average of just over 2% during the expansion that began in mid-2009 - the third-longest on record - and has occasionally had bursts of stronger growth only to fall back to the modest trend. "And I actually think we can go higher than 4 percent".

Economists are looking for even better growth this year, propelled by the $1.5 trillion tax cut that President Donald Trump pushed through Congress in December.

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In response to the momentum in the economy and prospects for positive implications of the tax reform and fiscal stimulus, we expect the Federal Reserve to upgrade its 2018 GDP forecast again at its March meeting (and possibly its policy rate forecast as well).

While the market already expects a rate hike in August, Stone said these expectations may need to be "adjusted" owing to potentially stronger-than-expected performance from the United Kingdom economy, peaking inflation, rising employment, and earnings growth. Few economists believe the economy can maintain such a pace these days, given an aging population and meager productivity gains.

"GDP fell short because companies did not produce enough to keep pace with demand, resulting in a surge in imports and a shortfall in inventory investment", said FTN's Low.

Bank of England Governor Mark Carney said earlier on Friday Britain's economy could start to grow more quickly later this year, if there is clarity about Britain's future relationship with the EU. Summer hurricanes also likely played a role, as consumers and firms who put off purchases during the storms made them up - while also spending on repairs - in the final three months of 2017.

The biggest impact came from the UK's services sector, which accounts for around 79% of the economy and grew 0.6% quarter on quarter, driven by business and financial services from the likes of lawyers, architects and business administrators.

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Whether that growth continues, however, will be influenced by many factors outside Trump's control.

Growth in the fourth quarter was most hindered by a widened trade deficit, as Americans bought more foreign goods than were sold overseas.

A measure of overall inflation rose at the fastest rate since 2011 but underlying inflation pressures remained subdued historically.

That was slower than analysts forecast and meant growth for the year was 2.3 per cent, better than the 1.5 per cent gain in 2016 but well below 2015's 2.9 per cent.

Sterling rose sharply against the dollar following the news, flirting with $1.43, up 1% on the day.

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US Economy excelling 3 percent growth remains out of reach