UK economy to slow as inflation stays high

By Jonathan Cable

LONDON (Reuters) - British economic growth is expected to slow this year as inflation stays high and is unlikely to recover in 2009 despite a couple more Bank of England interest rate cuts, a Reuters poll showed on Thursday.

But the probability of a recession, defined as two consecutive quarters of negative growth, has lessened, with the median forecast giving only a 25 percent chance within the next 12 months, down 5 percentage points from April's poll.

The monthly poll of 60 economists, taken May 15-22, showed economic growth at 1.7 percent in 2008, level with the April poll's forecast, and then slowing to 1.6 percent in 2009, down from April's 1.8 percent prediction.

This is a sharp slowdown from the 3.0 percent growth seen in 2007.

"Although we are not looking for the economy to fall into recession, growth over the next couple of years will proceed at a rate well below trend," said Peter Dixon at Commerzbank.

In a separate poll, economists said the United States may already be in a recession and that the recovery would be slow as high inflation prevents the Federal Reserve from making further cuts to interest rates.

Economies around the world have been undermined by a credit crisis that started with mortgage problems in the U.S. and a tumbling housing market and has since spread across other markets.

Britain's housing market, the bedrock of consumer wealth in recent years, is slowing fast with analysts predicting prices likely to fall 5 percent this year and next.