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US economy withstands trade tensions, continues to expand

US GDP rose at the fastest pace since 2014 but employment hits the brakes.

US economy continued to grow in the second quarter despite trade tensions with China. The country’s GDP, measuring the market value of goods and services produced, rose at a 4.2 per cent seasonally and inflation-adjusted annual rate – the fastest pace since the third quarter of 2014.

This expansion was attributed to a number of factors, including higher consumer spending and US President Donald Trump’s $1.5 trillion tax cut. It also supports the Federal Reserve’s (Fed) decision this week to raise interest rates for the third time this year.

However, it is not all good news. The number of unemployment benefits claimants in the US shot by 5.9 per cent, from 202,000 to 214,000 in the week to 21 September.

Meanwhile, Bank of England chief economist Andy Haldane said yesterday, 27 September, that the bank may have to either raise or cut interest rates in case of a disorderly no-deal Brexit. He said that the decision would depend on whether the value of the Pound and supply of investment and migrant workers drop, which would push up inflation and hit demand.

Focus today will shift to the health of the UK economy. Analysts forecast GDP will have expanded by 1.3 per cent in the second quarter of 2018. However, below-expectations growth data will weaken the Pound further.

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