The British Chambers of Commerce (BCC) has warned that the UK could enter a recession within the coming year, with unemployment likely to soar by 300,000 in the next two to three years.
The business group is the first to forecast a recession in Britain, pushing the number of people out of work to nearly two million by 2011.
The BCC cut its forecast for economic growth to 1.3% this year and 1.1% next year, down from the previously expected 1.7% for 2008 and 1.6% in 2009.
The organisation said that the country could face a technical recession, with the economy shrinking during two quarters before next March.
Although it predicted that a major recession similar to the downturn seen in the early 1990s was unlikely.
The BCC said that the downturn was set to be driven by a “very sharp” deceleration in consumer spending as households tightened their belts amid rising utility bills and falling house prices.
David Kern, economic adviser to the BCC, said: “Our quarterly economic forecast highlights a significant worsening in UK economic prospects. There is now a distinct possibility of technical recession.
“The level of UK unemployment is likely to increase to nearly 300,000 over the next few years, reaching almost two million. An increase above two million cannot be ruled out.”
Kern called for an interest rate cut to stimulate the economy, despite the Bank of England holding rates at 5% in July for the third month in a row.
Kern said: “Our view is that the threats to growth are more serious and more immediate than the risks of higher inflation. The UK economy urgently needs an interest rate cut to counter threats of recession.”
