Economic growth is expected to slow this year but pick up in the second half of 1999.

In its latest quarterly economic forecast the CBI predicts that interest rates will fall to 7% by the end of 1998.

There could be more joy for homeowners by the end of next year when the cost of borrowing is expected to fall to 6.25%, with underlying inflation staying within the government's target of 2.5 %.

There could be good news for house owners

The CBI also believes there could be some relief for manufacturers who have been battered by the surge in the value of the pound. Export growth volumes are now expected to rise by 1.4% this year compared to earlier estimates of 3%.

However sterling is forecast to drift down to DM2.78 by the end of the year and DM2.64 by end of 1999. This fall should mean that export volumes recover by 3.3% next year.

Umemployment should fall from 1.86m at the end of 1997 to 1.74m this year, although it is predicted to edge up to 1.79m next year.

Kate Barker, the CBI's Chief Economic Adviser, said: "We expect that the UK economy will have a soft landing this year and next as slower growth in domestic demand brings inflation back to the government's 2.5% target.

"The key immediate risk is that exports could weaken still further, especially if sterling does not fall in line with forecasts."