US GDP contracts for the first time since end of recession

The world's largest economy contracted at 0.1pc annual pace in the final three months of the year, sharply reversing the 3.1pc growth recorded in the third quarter.

The steepest drop in defence spending since the early 1970s, uncertainty over the fiscal cliff and the hurricane that swept up the east coast in November combined to hit growth.

Although economists were shocked by the contraction, there was encouragement taken from the resilience of US consumer spending. Household consumption grew at a 2.2pc rate in the fourth quarter, up from 1.6pc in the third. Investors' attention will now turn to the latest monthly jobs report which is due on Friday. "It will be important for Friday's employment number to settle people's nerves that this reflect the fiscal cliff concerns rather than a genuine stalling of the US economy," said David Semmens, an economist at Standard Chartered.

Even so, the first reverse for the US economy since it emerged from recession in 2009 underlines the challenges facing the recovery this year.

[link to www.telegraph.co.uk]