It's latest forecast for business predicts growth of just 1% in 2009, as rising living costs and falling house prices hit consumer confidence.

The Ernst & Young Item Club said the economy would struggle to avoid recession next year with growth slowing and inflation remaining well above the Government's target.

Consumers will be forced to cut back on none essential spending as sharp rises in the cost of basic food items and fuel bills, will limit their level of disposable income.

The Item Club expects house prices to fall by 10% this year and 6% in 2009.