The recent turmoil on the financial markets means London's economic growth will slow to crawling pace over the next couple of years, a think-tank has warned.

London's economy will expand by 0.7% this year, and grow by only 0.5% in 2003, according to a study by the Centre for Economics & Business Research (CEBR).

House prices are set to fall... but not until 2004

The slowdown will lead to higher unemployment and, ultimately, falling house prices, the research concluded.

"The party is over," said CEBR chief executive and co-author of the report Douglas McWilliams.

"It is now clear that the hoped for economic revival in the second half of this year is not going to take place.

"Times are likely to be tougher for Londoners for the next two years or so as they face the possibility of job losses, falling house prices and low or even non-existent bonuses."

End of housing boom?

The CEBR said recent falls in the stock market were to blame for the gloomy outlook, as is expected businesses to look to save cash and cut back on spending.

Growth in consumer spending is forecast to fall from 3.8% in 2001, to 1.1% this year and just 0.9% in 2003 and 2004.

And the CEBR predicts that the London housing boom is set to end.

It expects house prices to rise by 13.9% this year, but then prices will edge only 3.2% higher next year before falling by 1.7% in 2004.

The number of people out of work is expected to rise.

The CEBR predicts the London jobless total will increase by 64,000 between now and 2004, with the unemployment rate rising from 4.2% to 6%.