Aggressive cuts in British interest rates next year and higher government spending should be enough to keep the UK economy afloat and out of recession, according to the latest research from a top think tank.

But the National Institute of Economic and Social Research said in its latest review that the double blow to the public finances of higher spending and lower tax receipts would spell disaster for Chancellor of the Exchequer Mr Gordon Brown's "golden rule" of borrowing only to invest.

It said despite growing pessimism from businesses and consumers, GDP growth was expected to slow in 1999 - to 1.1 per cent - rather than fall outright.

"However, manufacturing output will decline by 0.5 percent and there is a one in three chance of outright recession," said the report.