2008 should see the UK economy rebalancing, not heading to recession, predicts the Ernst & Young ITEM Club Winter forecast, as Brits stop spending and start saving.
The economic forecasting group says the risks of an outright domestic recession remain low, but predicts "a rebalancing of the economy - as personal savings increase and consumer spending and house price growth slow".
Peter Spencer, chief economic adviser to the ITEM Club, said: "This is the time for new resolutions and this year is going to be a year of adjustment. We are facing serious problems as a nation of borrowers, particularly the chancellor."
Brits in 2008 are now expected to focus more on saving and less on spending.
Household expenditure is forecast to rise just two per cent in 2008, and 2.2 per cent in 2009.
"As we warned this time last year, we have been living beyond our means, lured by the offers of cheap no-questions-asked credit and tempted by the high prices that the family silver will fetch in international markets," Mr Spencer said.
"In the future, most families have no option but to tighten their belts. They can no longer afford to dip into housing equity to keep up the growth in spending."
However, the slowing economy will hit public finances, forcing the government to increase its borrowing as tax receipts fall.
"The Treasury failed to take advantage of years of good growth to put our public finances on a sounder basis, so our ability to respond by easing fiscal policy has been compromised," Mr Spencer explained.
"The government should have begun to sort out the national finances three or four years ago. Brown's famous self-imposed 'golden rule' was meant to stop us getting into this kind of bind but I'm afraid it will now make matters worse."
On the whole the UK economy is expected to ride the storm of recession in the US, the falling pound, and the credit crunch.
"As the Bank of England's interest rate cuts begin to take effect, the economy should pick up," said the ITEM Club chief economic adviser.
"With the money markets beginning to thaw out we can be a bit more optimistic. So, touching wood, 2008 should not be such a bad year after all. Then I expect GDP growth to move back up to 2.5 per cent in 2009."