The Organisation for Economic Co-Operation and Development (OECD) today sounded an uncertain note over the future of the UK economy and forecast a sharp slowdown next year.

The global economy is also losing steam, weighed down by a US economy that is slowing but not sinking into recession, the intergovernmental body added today.

The OECD said that the UK economy was expanding “briskly” towards growth of 3.1 per cent this year but gave warning that "the forward-looking picture may be very different".

Foreseeing that slowing house prices would hit consumption, it forecast a reduction in growth to 2 per cent next year, followed by an increase to 2.4 per cent in 2009.

Hedging its bets, the OECD said that next year's downturn could be greater “if the housing market falls into a significant slump and if business investment is hit harder than currently projected". But it added that a recovery in the financial markets could yet spell better fortunes for next year.

The body backed today’s rate cut by the Bank of England and also welcomed recent rate cuts in the US in the wake of a weakening American housing market. It said that borrowing costs could fall as high oil and food prices would not create unmanageable inflation.

The OECD expects the US economy to grow by 2 per cent next year, down from 2.2 per cent this year, but expects a rebound to annual growth of 2.2 per cent in 2009.

Jorgen Elmeskov, the OECD's chief economist, said: “It’s not a recession but obviously it’s not going to feel all that great either.”

The OECD added that developing economies, including China, India and Russia, would continue to grow, though not at the heady rates seen recently.

It admitted, however, that the turmoil that had hit the world’s financial markets remained the biggest threat to the global economy and that it was not possible to quantify the risk posed in this quarter.

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