Brown under fire as economists predict growth will halve

Gordon Brown's efforts to right the listing UK economy have been dealt a blow by business leaders issuing a stinging rebuke of his leadership and economists predicting a "sea change" that would see economic growth nearly halve this year.

The Ernst & Young ITEM Club, an influential panel of economists, believes that the economy will grow at just 1.8 per cent this year, down from 3.1 per cent last year. Next year will be even worse at 1.5 per cent, it says, unless Mr Brown takes decisive action.

Peter Spencer, chief economic adviser to the group, said: "Our reliance upon international banking markets means it is only a matter of time before [the economy] slows. This is going to be a rapid, painful adjustment and it will be a rough ride. We are facing a massive sea change in the balance of the economy."

The group expressed support for the unprecedented bonds-for-mortgages stimulus package set to be unveiled today by the Chancellor, Alistair Darling.

It was not alone, however, in its glum outlook for the economy. Pessimism among the UK's top business leaders has reached a low last plumbed in 2002, in the wake of September 11 and the bursting of the internet bubble, according to the Lloyds TSB Markets Business Barometer.

The survey of UK businesses with more than £1m turnover showed that optimism had fallen for the seventh month in a row, and that the drop last month was the largest in four months, as the twin forces of inflation and slowing growth take hold.

Voices of dissent about the Government's attempts to stave off recession have grown louder. The CBI, the business lobby group, reveals today that just 5 per cent of its members believe that ministers' drive to increase efficiency in public services – where one in five of the UK's workers is employed – has been successful. Eighty-six per cent think they have failed.

Employing 20 per cent of all UK workers, public services are a critical component of the economy, and their expansion over the past decade has been a key to the country's above-average growth. But with Northern Rock's liabilities now on the Treasury's books and decelerating house sales hitting stamp duty income, the CBI argued that the Government has run out of expansion room and must act aggressively to squeeze more productivity out of the current infrastructure andworkforce.

John Cridland, deputy direct-general of the CBI, said: "Reform of our public services is not a luxury to be dabbled with in times of plenty, but quietly forgotten when money is tight. It is time for prudence to become an everyday reality in our public services and not just a buzzword."