The economy is estimated to have grown by a healthy 3.1 per cent in 2007. However, the prospects for 2008 look considerably bleaker.
So says Howard Archer, chief UK and European economist at Global Insight. He reckons GDP growth will be limited to just 1.8 per cent in 2008 and would be the equal lowest figure since 1992 with 2005.
GDP growth is forecast to slow to just 0.4 per cent quarter-on-quarter in the first three months of 2008, and then remain at that level through the second and third periods.
This would result in year-on-year growth falling to 1.5 per cent in the third quarter. Growth is seen edging up to 0.5 per cent in the fourth.
Mr Archer stated: "We believe the economy will slow in the face of a number of persistent major headwinds, which will hit consumer spending, business investment and exports. Meanwhile, government spending and investment is starting to become less supportive to growth.
"Consumer spending seems certain to moderate in the face of the still marked overall rise in interest rates since August 2006, tighter lending conditions resulting from the credit crunch, muted real disposable income growth, heightened debt levels and a slowing housing market.
"Household purchasing power is likely to be dented by higher energy and food prices over the coming months, while many home owners face having to re-fix their mortgages at significantly higher rates.
"Furthermore, growing concerns about the economic outlook and personal financial situations are likely to encourage consumers to tighten their belts, especially as unemployment seems likely to rise in 2008."
Global Insight expects real consumer spending to grow by 1.8 per cent in 2008, down from estimated expansion of 3.2 per cent in 2007. Mr Archer went on: "Exports will be increasingly hit by slowing global growth, which is likely to more than offset some retreat in the pound.
"The pound is forecast to fall back significantly against the euro, but it may well remain relatively elevated against the US dollar and linked currencies. "
He says the major downside risks include the credit crunch extending and deepening as problems relating to the US sub-prime mortgage mess prove even greater than currently believed; equity markets suffering further sharp falls; the US economy slumping into a recession with serious knock-on effects on the global economy; the UK housing market crashing; and oil prices rising above $100-a-barrel for an extended period, resulting in a major slowdown in global growth.
Mr Archer cautions: "Any one of these problems could well cause UK growth to be as low as 1.5 per cent in 2008.
"A combination of them could very possibly lead to recession.
"It is a serious risk."
He sees claimant count unemployment - at a 22-year low of 813,000 in November - heading back up to 900,000 in 2008. "We expect the Bank of England to cut interest rates by a further 25 basis points in each of the first and third quarters of 2008. Furthermore, if the downside risks to the growth forecast materialise, interest rates could very well go down to 4.5 per cent or even lower."
The Chancellor will miss "by some considerable margin" his public finance targets for 2008/09 of reducing the Public Sector Net Borrowing Requirement to £36 billion and limiting the deficit on the current budget to £4 billion.
He also seems certain to miss the 2007/08 targets that were revised up in November's Pre-Budget Report of a PSNBR of £38 billion and a current budget deficit of £8.3 billion. Significantly slowing growth seems certain to increasingly undermine VAT and corporate tax receipts over the coming months, while a markedly softening housing market and substantially lower City bonuses will also hit tax revenues.
