The United States and Europe are likely to see a slowdown in consumer spending in the months ahead, the Organisation for Economic Co-operation and Development (OECD) said in its twice-yearly Financial Market Trends report, published yesterday.

"Declines in consumer confidence and the recent increase in jobless claims suggest some retrenchment in \ spending ahead," the OECD said.

US households also needed to pare back debt to sustainable levels after a bout of mortgage refinancing, used to support spending during the slowdown.

Spending was also expected to be subdued in Europe, according to the report, which had a cut-off date of March 10th.

"In Europe, a further slowdown in consumer spending and an increase in precautionary savings is even more likely, where rising unemployment nourishes fears of job loss, reflected in plunging consumer confidence indicators," it said.

The Paris-based organisation said its composite leading indicator showed that the US economy may have reached a turning point at the end of 2002, while other major economies remained on a downward trend.

But Europe could avoid recession, following improvements in business confidence and manufacturing activity in February.

The OECD said the latest Beige Book survey by the US Federal Reserve had shown that, while US economic activity remained subdued, there were signs that the cutting back of inventories was coming to an end and investment was picking up.

The markets expected US interest rates to remain on hold at least until the third quarter of 2003, before rising towards the end of the year.

A further 0.25-per cent cut in European Central Bank rates was also expected in the near future, the OECD said, with rates not seen rising again before the end of the year. The Bank of England also had room to cut rates.

The dollar was expected to weaken in the long run due to the high US current account deficit.