Roger Bootle says that a fall in government spending and a wobbly housing market will lead to a cut in interest rates.

A leading economist has warned that the economy will slide into recession unless the Bank of England slashes interest rates. Roger Bootle warned that a downturn in the housing market and a reduction in government spending will cause economic growth to slide from 3% to 2% in 2005.

In his quarterly economic review for accountant Deloitte and Touche Bootle warned that a showdown in the housing market could lead to layoffs in the construction sector. He predicts that the Bank of England will cut interest rates from 4.75% to 4% by the end of the year.

The Observer reported that Westbury Homes was offering £12,000 in cash to anyone buying their homes before February 2005. The Sunday newspaper said that the incentive was the biggest seen from a mass-market housebuilder since the early 1990s and was a sure sign of a housing market slowdown.

Another economists to express negative sentiment was Jonathan Loynes, chief executive of Capital Economics, who told The Observer that the first rate cut would happen in May. He said: “It’s not cut and dried, but our feeling is that this is it, and this is going to develop into something pretty major.”