US faces another political cliffhanger over huge cuts

Barack Obama warned that looming automatic spending cuts were already affecting America’s economy as another fiscal cliff crisis looms on Friday.

Despite the urgent rhetoric, there was no indication the White House and congressional Republicans were actively negotiating a deal to avoid the $85bn (£56bn) in budget cuts ahead of the deadline.

“The uncertainty is already having an effect,” President Obama said. “Companies are preparing lay-off notices. Families are preparing to cut back on expenses. The longer these cuts are in place, the bigger the impact will become.”

The automatic cuts were designed to be so unattractive and damaging that they would force politicians to address the country’s massive deficit but have become a tool for imposing budget cuts as Republicans have refused to agree to any taxes rises to raise more revenue.