The economy in the UK will slow sharply this year as consumers tighten their belts, a leading thinktank warned yesterday.

The National Institute of Economic and Social Research forecast Britain would grow by just 1.8 per cent this year after three per cent last year.

Consumer spending growth is forecast to see an even sharper retrenchment, falling from 3.1 per cent last year to just 1.2 per cent - the slowest rate since 1992 when Britain was emerging from recession.

"The UK economy has perhaps reached its most precarious position in over a decade because of global financial market developments," NIESR said. "Private consumption will slow to a crawl this year and next."

The government is pencilling in growth of around two per cent this year.

However, the think-tank's forecast are by no means alarmist. The consensus forecast among private economists is for a growth of 1.7 per cent and the International Monetary Fund is forecasting a growth of just 1.6 per cent.

NIESR noted the economic slowdown and the rebalancing of demand away from consumption to exports would take its toll on public finances.

It describes the government's projections in this year's budget as "optimistic" and reckons government borrowing will exceed £40 billion in each of the coming three financial years.