Rates will be lowered by a quarter of a point “at least three times” in a bid to avert the onset of recession, the economic panel said.

The economists believe that the risk of an outright domestic recession remains low given the momentum in growth, the strength of the world economy (outside the US) and the recent prospective easing in monetary policy. The economy will, however, undergo a “painful rebalancing” as it stabilises in 2008, the panel said. Peter Spencer, chief economic advisor to the Ernst & Young ITEM Club, said that although the UK faced serious borrowing problems, it was important to put them into perspective. He added: “The economy is fundamentally sound, the problems in the inter-bank market seem to be resolving themselves, employment is high and inflation under control despite the inflationary threats from world commodity and currency markets.”