Homeowners in the UK will bear the brunt of a City slowdown as Britain takes the biggest hit of the global credit crisis, the chief economist at Goldman Sachs predicted today.

Jim O'Neill said that the UK, with its heavy reliance on financial services, was "in the eye of the storm of a deleveraging world economy". He added that the ensuing slowdown would be passed on to homeowners.

Manchester-born Mr O'Neill last year predicted the collapse of the US property market which triggered the sub-prime crisis. He said: "The UK mortgage market is effectively frozen."

"House prices are going to go through negative changes … It's going to be a challenge for UK policymakers."

Fresh evidence emerged that tight lending conditions are already hitting the property market hard. Nationwide reported that house prices fell for a sixth successive month in April. Prices were down by 1 per cent compared with a year earlier, the first annual decline since March 1996.

JP Morgan recently forecast that 40,000 City jobs may be cut in the wake of the global credit crunch.

Mr O'Neill, who has a reputation for making far-sighted calls, added that the declining fortunes of the country's services sector are likely to see the UK lose ground to the rest of Europe. "The outperformance of the UK against the Eurozone has probably seen its peak," he said.

Goldman predicts that the UK economy will slow to an annual rate of growth of 1.8 per cent this year and in 2009, down from 3 per cent in 2007.

By contrast, Mr O'Neill, a renowned evangelist for emerging markets, struck an upbeat tone on the fortunes of the wider global economy, which he argued remains fundamentally sound and is likely to grow at a rate above its historical trend this year.

Narrowing credit spreads indicate that the world's bankers "have now seen the worst of the global credit crisis", he said — even though he believes US house prices are only about half way through their expected decline.

The relatively benign forecast for the credit squeeze chimed with that of Standard & Poors, the rating firm, which recently said that the end was in sight for writedowns of the rotten US sub-prime mortgage assets that sparked the current crisis. S&P estimated total sub-prime writedowns at about $285 billion (£144.2 billion), with more than $150 billion already declared.

Speaking in Bombay, Mr O'Neill, who coined the acronym "Bric" – for Brazil, Russia, India and China – said that the explosive rise in recent years of those countries will mitigate the US slowdown and support the wider world economy. "To say that when the US catches cold the rest of the world catches pneumonia is no longer true," he said.

In November, Mr O'Neill said that it was possible that the Chinese economy may surpass that of the US by 2027. He said that India would catch up with the US by 2050 and that Bric as a group would overtake the G7 in 2032.

With US exports improving at a rate not seen in more than 25 years, partly on the back of demand from the Bric nations, he suggested yesterday that now was – if such a thing could be said to exist – the optimum time for a downturn in the world's largest economy. "It sometimes seems God was born American. If you wanted to design a period for a US credit crisis you would have chosen now."

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