The next big move in interest rates will be downwards as the UK economy slows, a report from Barclays Bank predicts today.

The tightness of the labour market and the prospect of wage rises pushing up inflation mean it is too early to be certain that rates - currently at 7.25% - have peaked, says Chris Wright, economics director.

But in his quarterly economics review, he forecasts that rates will drop as low as 5.5% by the end of next year.

Achieving the so-called ''soft landing'' - when the economy slows gently without slipping into recession - will be easier said than done, he warns.

''This is particularly true when, as is now the case, different sectors of the economy are being affected in very different ways by a long list of shocks and policy changes, including the impact of sterling's strength, the crisis in Asia, and the sharp fall in oil prices.

''A key concern is that the economy may be weakening more sharply than generally expected and certainly more sharply than the policy makers were projecting a few months ago,'' he says.

He predicts economic growth, measured by GDP, will slow from its current level of 2.9% to 2.2% for 1998 and 1.3% for 1999.

Over the same period, he expects unemployment to rise from 1.4 million to 1.6 million.