Equities drop as US GDP misses expectations

The US economy grew at an annualised rate of 2.8% in the final quarter of last year, missing the 3% consensus expectation and triggering a 1% fall in UK equities.

US futures also pointed to a drop when Wall Street opens, and positioned for a fall of 0.5% in the Dow Jones Industrial Average, which would take the index to 12,623, and to a 0.5% drop in the S&P 500, or a fall to 1,309.

Investors have been largely bullish on the US' potential for growth with only a few concerned about the vulnerability of the country's corporate earnings and its potential for further expansion.

Although today's figures mark a 0.7% expansion on the previous quarter, they also miss analysts' predictions by enough to spark fears the US is not as strong as perceived. 

'The Commerce Department's gross domestic product (GDP) report confirms the acceleration of growth that had been hinted at by a flurry of upbeat economic indicators and business surveys in recent weeks, but also reveals that the economy is less healthy than the headline growth rate would suggest,' Markit Economics' Chris Williamson said. 

'Worryingly, much of the improvement was accounted for by inventory building. Excluding inventories, the rate of expansion slowed from 3.2% to just 0.8%,' Williamson added.

The 1% drop, or fall of 60 basis points, in the UK's FTSE 100 index of blue chip companies took the index to 5,735 shortly before 2.30pm.