More downgrades are on the cards in the coming weeks. On Monday, for example, both the International Monetary Fund and the Centre for Economics and Business Research - two of the non-City forecasters included in the Treasury's most recent publication - are expected to cut their predictions for growth. So just how bad will 1999 be?
Most forecasters still believe the UK will avoid recession next year, but only just. On average, independent experts expect gross domestic product (GDP) - the most generally accepted measure of economic growth - to increase by just 0.8 per cent next year. This compares with an expected growth rate for 1998 of 2.6 per cent.
So even if the UK manages to avoid a technical recession - that is, at least two consecutive quarters of negative GDP growth - the economic environment will be considerably tougher in 1999 than in any year since 1992.
The deterioration in the domestic economic outlook over the last few months also makes the official Treasury forecasts - which put economic growth for next year at between 1 per cent and 1.5 per cent - look increasingly optimistic. Just 14 of the 44 independent forecasters surveyed by the Treasury expect growth to be 1 per cent or higher. Only two expect growth of 1.5 per cent or higher.
Among the most pessimistic is Stuart Weatherby of WestLB Panmure. He expects the economy to contract by 0.5 per cent in 1999, the lowest forecast of any of the independents. According to Mr Weatherby, manufacturers will have a particularly difficult 1999, and this will have knock-on effects elsewhere.
He says: "The sector has faced high interest rates and also a strong exchange rate. The CBI survey [one of the most respected surveys of manufacturing confidence] is predicting a situation at least as bad as the last recession. I'm predicting a 3.5 per cent fall in manufacturing output. I'd say you could see 400,000 to 500,000 manufacturing jobs lost."
The fall-off in consumer spending will be a key determinant of the depth of the downturn, according to Mr Weatherby. He believes consumer spending will fall rapidly next year, and the economy will experience a mild recession, before bouncing back towards the end of the year.
Weaker-than-expected consumer spending also lies behind the gloomy forecasts from Deutsche Bank and the Centre for Economics and Business Research (CEBR). Mark Wall at Deutsche Bank is predicting no growth at all for next year, and fears that the economy could even contract in the last quarter of 1998, primarily because of the marked deterioration in consumer confidence. "The risks to our forecast are certainly on the downside", he says.
Nervous consumers and poor high street sales are also a factor in the decision of Doug McWilliams at the CEBR to cut his 1999 forecasts. According to the most recently published figures, the CEBR estimates the economy will grow by 0.7 per cent next year, in line with the industry average. But on Monday, the CEBR will issue new forecasts, and is expected to warn that the economy will slip into a recession - albeit a mild one - in 1999.
Despite the deterioration in the domestic economy, only a minority of forecasters are steeling themselves for a full-blown recession in the next few months. Just four of the 44 independents are predicting that the economy will shrink next year. Several believe that a "soft landing" - a relatively gentle slowdown in economic growth - is still a possibility.
Geoff Dicks at Greenwich NatWest is among the bulls. He predicts that the economy will grow by 1.3 per cent next year, in line with the more optimistic Treasury forecasts. According to Mr Dicks, the UK economy is set for a difficult six months, but recent cuts in interest rates - the Bank of England has cut rates by 1.25 percentage points in the last three months - should help ensure growth picks up again towards the end of 1999.
Inflation will dip below the Government's target next year, partly because of rate hikes earlier this year, but the recent monetary loosening should see inflation return to target in the year 2000, according to Mr Dicks.
The most optimistic forecaster is Richard Jeffrey at Charterhouse, who believes the economy will grow by 2.1 per cent next year, far more than expected by the Government, and only slightly weaker than the 1998 growth rate. According to Mr Jeffrey, the economic gloom and doom has been overdone, not least by the media.
He says: "My feeling is that consumer spending will probably turn out to be stronger than other people are predicting. Consumer personal income is growing. We've never had as many people in employment as at the moment, and, on average, I don't think that employment next year will be lower than this year."
Mr Jeffrey believes recent falls in consumer confidence are temporary, and were caused, at least in part, by gloomy newspaper headlines.
The flipside of his upbeat predictions for growth is stronger-than-expected inflation. He expects the underlying rate of inflation targeted by the Bank of England to hit 3.4 per cent by the end of next year. That compares with a consensus prediction of just 2.3 per cent, marginally below the Bank's 2.5 per cent target.
So recession in 1999 is still only an outside possibility, according to the independent experts, although most believe the risks are on the increase. What seems certain, though, is that 1999 will not be as easy as 1998, particularly for Britain's manufacturers.Reuse content