NORTHERN IRELAND is fighting an economic slowdown on three fronts as cuts in public spending, rising inflation and the credit crunch continue to hit home.

The latest Ulster Bank Quarterly Economic Review, published today, paints one of the gloomiest pictures yet of the current state of the North's economy.

The review predicts economic growth of just 1 per cent in 2008 and 1 per cent in 2009, and it also warns that growth could be lower than forecast.

The report blames the slowdown on a number of domestic and external factors, including cuts in public spending; the deteriorating economic outlook for Northern Ireland's key trading partners, Britain and the Republic; and rising inflation.

The Ulster Bank report states that, at a regional level, Northern Ireland has experienced the sharpest downturn across the UK in business activity levels.

It also points to the dramatic slowdown in Northern Ireland's property market and highlights the fact that average house prices have fallen in seven out of the past nine months.

According to Ulster Bank Northern Ireland economist Richard Ramsey, rising cost pressures have been hitting certain businesses particularly hard.

"All sectors are experiencing slowdown, but the services sector has lost significant economic momentum," he said.

"The rapid slowdown in Northern Ireland's service sector is most apparent in the business services and finance sector - Northern Ireland's number-one jobs generator."

One sector which is bucking the downward trend, according to the Ulster Bank report, is manufacturing, which has continued to perform relatively well and is sustaining employment levels.

According to Mr Ramsey, although the North remained a public-expenditure driven economy, cuts in government spending meant it was now less insulated from an economic slowdown than in the past.

Mr Ramsey said he believed the North's labour market had remained "remarkably resilient" to the slowdown to date, but he warned that it would weaken significantly over the next 12 months.

Mr Ramsey predicted that the North's unemployment rate - currently at 4.1 per cent - would jump to 5 per cent by the end of the year.