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US on the road to recovery

The US economy has taken a major step to recovering from recession with an increase of 3.5 per cent in GDP in the third quarter.

The US growth follows recent news that Japan, China, Germany and France are all climbing out of recession.

Earlier this month, the UK had slipped into the longest recession on record as GDP contracted 0.4 per cent in the third quarter, the sixth consecutive quarter of negative growth.

Liberal Democrat Shadow Chancellor Vince Cable says this means the UK is now one of the last major developed countries still in the grip of recession.

He says: “We are now paying the price for a massive over-reliance on the banking sector and a bubble in housing and personal debt which went unchecked by the Prime Minister for years.”

Bestinvest investment manager Hugo Shaw says: “The US administration’s massive stimulus is a distortive factor. Many companies have cut costs to the bone and final demand is unlikely to increase markedly any time soon. These factors leave plenty of room for doubt over the robustness of the latest statistics.

“The equity rally of the last six months indicates that caution should be taken, although better yields in riskier assets will continue to encourage investors into the stockmarket.

“If a recovery does start to take shape, then a move from larger to smaller companies should be beneficial.

“Given the uncertainty over the strength and future duration of recent improvements, I recommend the M&G American fund and Legg Mason US smaller companies.”

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