US growth stalls to slowest for two years

THE US economy grew at its slowest rate for two years during the first quarter as the surging price of oil kept consumers' cash in the their pockets.

Official figures showed growth fell to an annualised rate of 3.1%, the weakest rate since the first quarter of 2003 when the US was preparing for the war in Iraq.

The market had forecast a rise of 3.6% after a growth rate of 3.8% in the final quarter of last year and the disappointing figure rattled stock markets around the world.

Shares around the world closed lower, after the US data bolstered fears of slowing growth for the world's largest economy. Edgy investors retreated from stock markets, with the Dow Jones Industrial Average down 128 points at 10,070, the Nasdaq technology market 1.3% lower and the broader S&P 500 index losing 1.1% by last night's close.

The price of oil has hit historic highs in recent months, with US light crude reaching $56 a barrel, and experts believe the high price will continue to dampen demand in the second quarter of the year.

Paul Ashworth, economist with Capital Economics in London, said: 'Investment, which we had hoped would continue to drive overall GDP growth, stalled badly. The most likely explanation is that firms were caught out by slower demand towards the end of the quarter.'

Economists were concerned corporate investment grew at just 4.7% during the quarter, down from 14.5% in the previous three months.

Consumers and businesses trimmed their spending pace, which showed up in ballooning stocks of unsold goods.

Inventories shot upward at an annual rate of $80.2bn following a $47.2bn pace in the fourth quarter. That was the most vigorous pace of inventory addition in nearly five years, since $99.3 billion in the second quarter of 2000.