The UK economy is set to experience its weakest period of growth in 15 years and there is a risk of a recession in the next two years, according to the Deloitte Economic Review, which said the housing market would be at the heart of the downturn with prices falling by about 5% this year.

Deloitte said a prolonged economic downturn may also force employers to ‘wield the axe more sharply’. Experian, a financial data firm, said that 10,000-20,000 of Londons 400,000 financial services jobs could be lost over the next 18 months. Roger Bootle, Deloitte’s economic advisor, expects house prices to fall by 8% in 2009.

Unlike in 2005, Deloitte said the UK economy would not be bailed out by a strong world economy. It expects US growth to slow to zero in the first half of this year.

And while the European economy, the UK’s biggest export market, will remain relatively strong, it will not be enough to offset a US slowdown, the report says. Nor will the rapidly growing economies of India and China come to the UK’s rescue, as the two countries buy less than 5% of UK exports.
In addition, Deloitte has forecasted that the UK base rate will fall to 4% in 2009, and it expects the UK economy to grow by 2% this year and by a slightly smaller margin in 2009.