The US revealed today that it has notched up its second consecutive quarter of sluggish growth.

GDP in the first quarter rose just 0.15 per cent. On an annual basis, first-quarter growth was the equivalent of 0.6 per cent a year, the same pace as the previous three months.

However, the figures sparked some cheer in financial markets after economists had predicted annualised growth would fall to 0.2 per cent.

The figures came as the US Federal Reserve's Open Market Committee (FOMC) prepared to announce its decision on interest rates later today.

The FOMC is widely expected to order a further quarter-point cut in US official interest rates to 2 per cent, the lowest level since the end of 2004.

However, the Fed is also expected to use its latest statement on US conditions to signal that it will pause in its campaign of rate cuts, which are aimed at staving off recession, to assess the impact of its previous moves.

Growth in the first quarter was dragged down by faltering household spending, which accounts for two-thirds of US GDP.

Consumer spending in the first three months of 2008 rose at its weakest pace since spring 2001, when the American economy was last in recession, rising at an annual equivalent rate of only 1 per cent. This was down from 2.3 per cent in the fourth quarter.

The strength of the economy was also hard hit by the fallout from the housing crash, with spending on homebuilding — a much more important driver of growth in the US than in Britain — plunging at an annual pace of 26.7 per cent as it suffered its ninth quarterly decline in a row.

The first quarter fall was the sharpest drop in residential construction since the end of 1981.

Growth in the first quarter was flattered by a sharp rebound in stock-building by companies, regarded as bolstering output. Stocks of unsold goods rose at the equivalent of $1.8 billion a year in the quarter, after shrinking by $18.3 billion in the final quarter of last year.

However, economists are likely to warn that the stock build-up, while adding to GDP for now, is a symptom of weakening demand and that companies are likely to respond by cutting back on orders and production in coming months.

There was some better news today for the Fed’s hawks who are worried over inflationary pressures being stoked by soaring commodity and oil prices and the steep fall in the dollar.

A key GDP-based measure of inflation favoured by the Fed showed some easing off in price pressures. The so-called core deflator for personal consumer spending, which excludes food and energy costs, rose by an annual 2.2 per cent in Q1, down from 2.5 per cent in the previous quarter, although still above the 2 per cent ceiling preferred by the Fed.

Explore Economics

• Pre-Budget Report 2008

• Budget 2009

• World Economic Forum

• The Times MPC

Times Recommends

• Lies and cover-up at MG Rover exposed by report
• High oil prices push manufacturing costs up
• Primark founder steps down as chief executive