US economy undershot expectations to grow at 2% rate in first quarter
The US economy grew at an annualised rate of 2 per cent in the first quarter, falling short of Wall Street expectations despite picking up from a weak end to 2025.
Thursday’s figure from the Bureau of Economic Analysis was up from the 0.5 per cent growth rate in the final quarter of last year but below the 2.2 per cent predicted in a Bloomberg poll of economists.
The data comes after the European Central Bank and the Bank of England both held interest rates steady on Thursday as officials await further evidence of the inflationary impact of the Middle East war.
The Federal Reserve also announced it was holding borrowing costs steady the previous day.
BoE governor Andrew Bailey said that keeping rates unchanged at 3.75 per cent was a “reasonable place given the situation of the economy and the unpredictability of events in the Middle East”.
He added: “We’ll continue to monitor the situation and its impact on the UK economy very closely.”
The ECB said: “The longer the war continues and the longer energy prices remain high, the stronger is the likely impact on broader inflation and the economy.”
The decisions from the central banks come amid a packed day of economic data releases that give a picture of how the two-month-old war is affecting Europe and the US.
Data released earlier on Thursday showed that Eurozone inflation rose more than expected to 3 per cent in April as the economy reeled from the energy shock.
Separate figures showed that Eurozone growth slowed to 0.1 per cent in the first quarter.
Swaps markets trim bets on ECB rate rises
Traders in swaps markets have slightly pulled in their bets on European Central Bank rate increases this year in the wake of Thursday’s meeting.
Three rises are still viewed as likely this year, according to derivatives contracts, but that third increase is now viewed as a 75 per cent probability, rather than a near certainty.
Kaspar Hense, portfolio manager at RBC BlueBay Asset Management, said: “There is still upside to inflation but also the will from the ECB to look through these headline shocks.”
He added that European bonds had “traded well on the continued dovish tone”.
Italian two-year bond yields are down 0.1 percentage points at 2.86 per cent as the price of the debt rises.
US stocks steady after GDP data and flurry of Big Tech results
Wall Street stocks were steady after data showed weaker than expected US economic growth.
The blue-chip S&P 500 was up 0.1 per cent just after Thursday’s opening bell, about an hour after the release of US GDP data. The tech-heavy Nasdaq Composite was flat.
The moves also followed a flurry of results from Big Tech companies after Wall Street’s closing bell on Wednesday.
Shares in Alphabet jumped 7 per cent after the Google parent showed signs of strong AI-driven growth in earnings. Meta tumbled about 10 per cent after the social media company reported a drop in users and increase in capital spending.