The US economy is set to continue its slowdown with further interest rate cuts, according to Bermuda-based LOM's Investment Policy Committee Economic Forecast.

The company's financial outlook revealed that more than two years into a housing downturn, the US economy is starting to confront broader challenges to continued expansion.

It reckons that, while overall growth has remained on a healthy track throughout 2007 (3.9 percent quarter over quarter growth released last month), with no sign of a spill-over from housing to consumers, the expansion's resilience is being tested as stresses on the financial system have emerged in the wake of the market turmoil that began around the middle of the year.

The report read: "Our forecast is for a continuing slowing of the US economy for the next six months and more rate cuts despite the dollar's weakness.

"While chances of a recession have risen, we feel that as long as the annualised growth rate does not drop below one percent, we do not think it will have a material impact on the global economy."

From across the Atlantic, the findings also highlighted a downturn in the UK housing market, believing that this will cause the economy to slow quickly as the housing crisis of the late 1980s remains fresh in most people's minds.

In terms of interest rates, LOM predicted the US Federal Reserve will continue to cut rates at each of the next four meetings as the market is now pricing in 3.50 percent short term rates by the middle of 2008, while in the UK it feels the growing credit and housing crunch will force the bank to cut rates as soon as the next December 5 meeting, reflected in the 7-2 vote to keep rates steady at 5.75 percent earlier this month, with the direction of the dissenters being to cut rates.

The Bank of Canada has increasingly cited downside risks to its forecast setting the stage for rate cuts, it claims, and with the Canadian dollar exerting a greater drag than the central bank expected and inflation following a lowering trend, it reckons there will be 25 basis point cuts on December 4 and again on January 22.