The UK accounts for more than a third of global investment in the European Union and some 40% of the total from the US and Japan.

Within Europe itself, cross-border investment in the UK far exceeds that of any other country, the report says.

These findings, from the government agency, Invest in Britain Bureau (IBB) come as another report says 500,000 manufacturing jobs will be cut in the UK over the next two years.

BBC Industry Correspondent Stephen Evans: The UK economy is seen as strong in the long-term

The survey, based on the Treasury model of the economy, forecast that the overall jobless total will top the two million mark by the end of 2000.

This will mark a huge jump on the current level of 1.3 million, the Ernst & Young-sponsored Item Club of independent forecasters predicted.

But the report said Britain will narrowly avoid recession despite the worldwide financial turmoil.

Interest rate drop

The Item Club predicted UK output growth will fall to just 0.5% in 1999.

But the stock market slowdown will put the brakes on consumer spending and inflation, leading the Bank of England to drop interest rates from their current 7.25% to 6% by the end of next year, the report said.

The Item Club said the fall in stock markets since their highs over the summer had already had a similar effect on curbing inflation.

While the report predicted Britain will manage to avoid a recession, it added that the downturn will be sharp enough to threaten Chancellor of the Exchequer Gordon Brown's spending plans.

The Chancellor might have to alter spending plans, report said

If the global crisis causes world stock markets to slow by a further 20% over the next three months, the Treasury's income from taxes would drop sufficiently for Mr Brown to be forced to review his policies.

The Chancellor may either have to raise taxes, break his "Golden Rule" of not borrowing except to invest, or cut public spending, the Item Club said.

Despite predicting the economy should avoid recession, the Item Club qualified its forecasts by saying that with the uncertain global outlook, "we are skirting dangerously close".

Manufacturing decline

The report comes as the Confederation of British Industry prepares to release its quarterly report into industrial trends, which are expected to paint a pessimistic picture of the economy.

The CBI statistics are likely to point to a further decline in manufacturing over the summer, conflicting with official evidence released in last week's output figures that the slide was coming to a halt.

The Centre for Economics and Business Research think-tank warned of a "scaled-down version of the 1930s slump" if world leaders fail to address the global economic problems.

The reports will all be pored over by Mr Brown's advisers as they go through the public accounts to produce his pre-Budget report for 3 November.