Britain's top economist rejected suggestions that the British economy is on the slide, despite new reports showing consumer spending has slowed and house prices are faltering.

Bank of England governor Sir Edward George said the situation was not as grim as the picture being painted.

Sir Edward predicted that the rate of increase in house prices would "moderate sharply" and consumer spending would slow down, but he said interest rates were likely to stay near their current level of four per cent.

He said: "On the basis that we are anticipating the economy, on our central expectation, will grow close to trend, and inflation will remain close to target. That is not something that implies a sharp change in interest rates in either direction.''

Sir Edward, interviewed yesterday on BBC Radio 4's Today programme, added: "The expectation we have is still for a gradual moderation in consumer spending.

"We think the economy is being supported helpfully by public spending. We see a gradual pick-up in external demand and we see all that with inflation close to target.

"The thing that would help the UK economy more than anything else I can think of is for a clearly established stronger recovery in the world economy."

Speculation over the state of the economy has been fueled primarily by two reports.

The Confederation of British Industry reported pre-Christmas sales dipped for the first time in ten years.

Nationwide Building Society also predicted a severe slowdown in the housing market with prices likely to fall in some places, particularly in parts of London.

The Bank of England yesterday released figures which suggested the high street boom cooled in the run-up to Christmas.

The institution said that unsecured net lending increased by £1.4bn during the month, down from £1.76bn in October.