In my mid-year forecast update, before the “credit crunch”, I suggested US economic prospects had improved relative to other major countries. We now know that US GDP rose at annualised rates of 3.8% and 3.9% in the second and third quarters. The US is likely to have grown faster than other G7 economies over the two quarters.

Improved trade performance has been a major component of this strength. Net exports contributed 1.3 percentage points to annualised growth in the second quarter and 1.0 p.p. in the third. This more than offset the direct impact of the housing recession: residential construction subtracted 0.5 and 0.9 p.p. from growth in the two quarters.

Yesterday’s ISM manufacturing survey showed a rise in the index of export orders and a sharp fall in imports. The gap between the two indices reached a 12-year high, suggesting net exports will continue to contribute strongly to GDP growth in the current quarter – see chart.

The “credit crunch” will hit fourth-quarter growth but I remain hopeful that economic weakness will be contained.

“Other assets” on the Bank of England’s balance sheet rose by a further £2.2 billion in the week to Wednesday 31st October, bringing the cumulative increase since 12th September to £22.8 billion. This is the best available estimate of the extent of the Bank’s support to Northern Rock.

The weekly rise is the smallest since the Rock crisis broke but follows a £4.7 billion gain last week. With deliberations on Northern Rock’s future dragging on, the loan seems likely to grow further and may approach £30 billion – the amount requested from the Bank by Lloyds TSB as a condition of its aborted rescue takeover.

The balance sheet figures also show the Bank has drained liquidity from the banking system over the last week, with reserves falling from £24.1 billion to £20.0 billion. This action seems inappropriate given that interbank interest rates remain high relative to Bank rate and suggests the Bank has yet to learn the lessons of recent events.