Economic growth forecast to halve

An economics consultancy has halved its 2008 growth forecast for the UK economy to 1.5 per cent due to financial turbulence and a slowing housing market.

The authors of the latest UK prospects report have downgraded their estimations from 1.8 per cent to 1.5 per cent for 2008, less than half the 2007 growth rate of 3.1 per cent.

According to the report from the centre for economics and business research (cebr), the economic downturn is likely to extend into next year with the economy only expanding by 1.7 per cent in 2009.

The housing and financial markets together account for 23 per cent of UK economic output and in addition the Bank of England is likely to cut rates at only a gradual pace over the next two years, according to the report.

However, the authors believe interest rates will bottom out at 3.75 per cent in late 2009 as the central bank is forced to respond to the impact of the credit crunch.

Richard Snook, one of the report's authors, and economist at cebr, said: "We expect the economy to take a large knock from the financial market turbulence, with the housing market slowdown, tight household finances and weakening government spend all assisting in producing a poor performance."

Although the global economy is set for tough times over the next two years, the report predicts a return to cheap liquidity and rapid growth from 2010.

Earlier this month, the Confederation of British Industry (CBI) also downgraded its 2008 outlook for UK growth, down 0.2 per cent to 1.8 per cent.

In the Budget this month, Alistair Darling revised government's predictions for economic growth in 2008, to between 1.75 per cent and 2.25 per cent over the year from his two per cent to 2.5 per cent forecast in October.