The UK economy is set to falter amid a plunging housing market and soaring unemployment, an influential report has warned.

The number of jobless Britons will rise by more than one quarter to 1.2 million by 2004, accountancy firm Deloitte & Touche warns in its latest Economic Review.

Historically, such declines in the housing market have invariably been accompanied by a full-blown recession Roger Bootle, economist

Economic growth will slow to 1.75% this year, compared with official forecasts of 2.5-3.0%.

The trigger for the economic gloom will be a 20% collapse in house prices between a peak later this year and a trough in mid-2005, said Roger Bootle, economic adviser to Deloitte.

The "bursting of the bubble in the housing market" will quell the High Street spending boom which has so far saved the UK from the worst effects of the ongoing global economic downturn.

Recession fears

Mr Bootle added: "Historically, such [declines] in the housing market have invariably been accompanied by a full-blown recession in the overall economy."

But he said that a fall in interest rates, from the current 4.0% to 3.5%, would temper the impact of a house price collapse.

"The drop in rates will moderate the fall and its consequences."

Yet it will still see consumer spending fall next year for the first time since 1991, he predicted.

Finance hole

Slower economic growth will, through reducing tax receipts, leave Chancellor Gordon Brown tackling a �10bn hole in the public finances.

He will be forced to borrow �29bn in 2004, compared with a planned �19bn, to keep his spending programme on track, Sunday's report said.

But government spending will help the UK economy stave off recession, Mr Bootle added.

"Slower growth in household spending will eventually be offset by a recovery in exports and investment, as well as stronger government spending."

Bank chief quizzed

Mr Bootle is the latest in a series of economists to question the more benign economic outlook portrayed by Bank of England chief Sir Edward George.

On Friday, Sir Edward told BBC Radio 4's Today programme, that 2003 would see a moderate slowing of growth in both house prices and consumer spending.

But Jonathan Loynes, chief UK economist for the consultancy firm Capital Economics, said: "We are set for another year or two of pretty weak economic growth, certainly weaker than the forecasts that the policymakers and the government have been producing."