AMERICAN bond and share prices went up but the dollar fell back after the US Department of Commerce reported that the world’s biggest and most influential economy had slowed even more sharply than thought during the spring quarter.

US output rose at an annual rate of just 2.5 per cent between April and June as higher oil prices bit, according to first estimates. GDP grew at less than half the 5.6 per cent annualised rate recorded in the first quarter and was slower than in the UK.

Consumer spending growth halved from 4.8 per cent to 2.4 per cent. Americans reacted to the impact of relentless interest rate rises on mortgage payments and higher bills for motor fuel and domestic power. Buying new cars became a low priority and families spent 6.3 per cent less on new homes, ending the house price boom. Businesses spent less on equipment and software for the first time in three years. Growth in government spending, boosted in response to last year’s natural disasters, also slowed sharply.

Wall Street economists reckoned the slowdown cut the odds of an August interest rate rise to one in three. Ben Bernanke, Chairman of the Federal Reserve, has indicated that any future rate changes will depend on events.

However, high oil prices are boosting inflation in the rest of the economy. Core inflation, excluding energy and food, rose from 2.1 per cent in the first quarter to 2.9 per cent, the highest for 12 years. The Fed sees anything over 2 per cent as worrying.

Revisions of earlier growth estimates by the Bureau of Economic Analysis show that the economy grew by about 0.3 per cent a year less in 2003-2005 than reported, because computer sales were overcounted, but core inflation was higher than thought.

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