Chancellor Alistair Darling today signalled that the impact of global financial turmoil would last longer than expected as he cut growth forecasts for the second time in six months.
Mr Darling slashed growth forecasts to between 1.75 per cent and 2.25 per cent for 2008 - following a similar move in October's Pre-Budget statement - but also cut his predictions for next year for the first time.
The Chancellor now expects the economy to grow by between 2.25 per cent and 2.75 per cent in 2009 - compared with the 2.5 per cent to 3 per cent anticipated six months ago - as the effects of the credit crunch that began in the US last year linger on.
But Howard Archer, Global Insight chief UK economist, said the predictions "still looked too high".
Mr Archer said: "Mr Darling highlighted weaker global growth, financial market turmoil and tighter lending conditions influenced markedly by the US crisis. He also argued that UK growth is likely to be higher than the Eurozone, US and Japan in 2008.
"This skates over the fact that the UK economy has serious problems of its own - notably including high household debt levels and an over-extended housing market."
The Chancellor expects growth to return to trend levels of between 2.5 per cent and 3 per cent in 2010 and said that the economy was "more resilient and more prepared to deal with future shocks".
His revised 2008 forecasts bring him more in line with Bank of England and City predictions.