Brexit price rises slam brakes on GDP growth

The U.S. economy grew at a 2.1 percent pace in the fourth quarter of 2016.

Growth in consumer spending, which accounts for more than two-thirds of US economic activity, braked to a 0.3 percent rate in the first quarter. The "second" estimate for the first quarter, based on more complete data, will be released on May 26.

Economists had been expecting GDP growth to slow as consumers tightened their belts in the face of rising inflation, but they had pencilled in a higher growth figure of 0.4%.

The labor market now is close to full employment and the confidence of consumers is close to highs of multi-years, which suggests that the sharp slowdown mostly created by weather in spending by consumers is likely to be short-lived. GDP for the first quarter usually underperforms due to problems with calculating certain data that the government acknowledged and is trying to rectify.

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"The weakness is not a reflection of the underlying health of the economy, part of it is residual seasonality", said Ryan Sweet, a senior economist at Moody's Analytics in West Chester, Pennsylvania.

The soft patch at the start of the year is bad news for the Trump administration's ambitions to significantly boost growth.

On Wednesday, the administration released an outline of its tax-cut plan, proposing to cut rates on both individuals and businesses and provide what Mnuchin called "massive tax reform".

Howard Archer, chief United Kingdom economist at IHS Markit, said: "Following the marked first quarter slowdown, we suspect that 2017 will stay challenging for the United Kingdom economy and particularly for consumers as their purchasing power is squeezed harder still".

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The US economy slowed dramatically in the first quarter of 2017, with GDP weakening andexpanding by only 0.7 percent, down sharply from the 2.1 percent expansion seen in the fourth quarter of 2016.

A measure of private domestic demand increased at a 2.2% rate last quarter. Additionally, the spending of consumer also took a hit from government took time in issuing income tax refunds to combat fraud. The strongest growth came from the manufacturing sector as the fall in the value of the pound after June's Brexit referendum boosted United Kingdom exports. This means that while the U.S. economy might be tumbling into a period of stagflation, the central bank still has the opportunity to continue raising base interest rates, making fiscal stimulus an urgent necessity. The overall GDP deflator rose at a 2.2 percent annual rate, with the core PCE rising at a 2.0 percent annual rate in the quarter. "In recent years there is a well-established pattern of GDP growth disappointing in the first quarter and then rallying over the remaining three quarters". Inventories, on the other hand, subtracted 0.9% from the growth.

There was some good news in the first quarter.

Investment in home building increased for a second quarter.

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