Economic 'Golden Age' at an end

THE 'golden age' of the UK economy is coming to an end as house prices and consumer spending embark on a downward slide, according to a new report.

Accountancy giant Deloitte has predicted the UK is facing a 'backlash' after enjoying a bouyant economy during the past decade, warning a downturn could last for years.

The company's gloomy Economic Review added that further falls in house prices are likely to cause an upward shift in unemployment.

The report follows the worst Christmas for the High Street in 10 years and a cascade of surveys pointing to further falls in house prices.

Economic advisor Roger Bootle said: 'The golden age has been achieved at the expense of major imbalances in the economy, the backlash from which is likely to be felt over the next few years.

'The biggest hit of all is set to come from the housing market, which has already embarked on a major slowdown. And whereas the main driver of the economy in recent years has been robust household spending growth, this is likely to suffer as the housing market slowdown gathers pace.'

The Chancellor's ability to reign in a downturn in the economy will be limited as his spending plans has already put his 'Golden Rule' of borrowing only to invest over an economic cycle, is already at risk.

Therefore, if Gordon Brown wants to continue to spend to prop up the economy it may have to be done through increased taxes.

Brown's Golden Rule could also be thrown into doubt if UK growth slows to Deloitte's prediction of just 2% in 2005 and 2.2% in 2006. Brown expects growth of 3.25% during this year.

Deloitte expects interest rates to drop to 4% during the year before returning to their 2003 low of 3.5% next year as the Bank of England seeks to inject life into the housing market.