WASHINGTON, Jan 27: US economic growth slowed dramatically in the last three months of 2005 to just 1.1 per cent as government and consumer spending fell away, the Commerce Department said on Friday.

US gross domestic product, after expanding by an annualized 4.1 per cent over July-September, dropped to its weakest pace in three years after 10 consecutive quarters of growth above 3.0 per cent.

Over all of 2005, GDP grew by 3.5 per cent, down from 4.2 per cent in 2004.

Giving its first estimate of GDP growth for the fourth quarter, the department said the slowdown was largely due to weak auto sales, slower business investment, a rise in imports and a large drop in federal spending.

Economists said the surprising report foreshadowed a more moderate pace of expansion for the world’s biggest economy in 2006.

But Treasury Secretary John Snow dismissed the GDP slowdown as “anomalous” and stressed that the preliminary report was subject to revisions.

“Economic fundamentals point to continued strong economic performance in the United States in 2006. The US economy is performing well,” he said, in comments echoed by White House spokesman Scott McClellan.

The GDP report will intensify debate over whether the Federal Reserve should call a halt to its campaign of interest rate hikes when it meets on Tuesday. But the report also showed inflationary pressure building.

The core personal consumption expenditure price index — a key measure of inflation watched closely by the Fed — rose at a 2.2 per cent annual rate, well above the level of 1.4 per cent reached in the previous quarter.

“This is a disappointing release ahead of the Fed meeting, but I don’t think it will derail a rate hike next week,” ECU Group chief economist Neil MacKinnon said.

“But it does put a question mark on how far US rates will go up,” he said.—AFP