LONDON, July 21 (Xinhua) -- British economy will face tough time ahead with a looming recession caused by "moribund credit market and volatile oil prices," a leading advisory service predicted here on Monday.

    British economy will struggle to avoid a recession in 2009 with its predicted GDP growth of 1.0 percent, according to the ITEM Club, backed by accounting giant Ernst & Young.

    The ITEM Club expects inflation to remain above the target range of 1-3 percent for the next 12 months and a substantial unemployment hike, while house prices will considerably fall by about 10 percent through 2008 and a further 6 percent through 2009.

    "Both on the high street and in the housing market it is going to get a great deal worse before it gets better, " ITEM Club Chief Economist Peter Spencer said, worrying that consumers could "move from their current state of denial into a state of despair."

    The advisory service believes that despite oil prices may come off its record highs in the following two years, consumer spending is unlikely to defy gravity for any longer.

    "We have already seen a housing crisis that has morphed from a credit crunch to a general collapse in confidence as prices have tumbled," Spencer said, blaming that both consumer and the government have been living beyond their means for the last few years, over borrowing on credit.

    The summer forecast expects oil prices to peak at 150-U.S.dollar a barrel this summer, before easing back towards 100-dollar over the next two years.

    "Consumers will inevitably cut back on nonessential spending in the face of the impact of rising food and energy prices on their discretionary incomes. Many parts of the leisure sector will be particularly hard hit," said Spencer.

    With consumer spending falling off sharply, the ITEM Club expects a slowdown in the high street to pave the way for a rate cut, possibly as early as November.

    The ITEM Club also urged the British government to stand firm on excessive payment demands in public sectors, which could put severe pressure on any attempts to curb inflation and potentially blow any hopes of a medium term recovery out of the water.

    Despite the risk of a technical recession under way, the ITEM Club believes that financial pressures facing households and companies are still not as severe as what preceded the early-1990srecession, saying its labor market is more flexible and companies are generally in a stronger position.