More than 200,000 people will lose their jobs by the end of 2009 as the economy slows markedly, the CBI has warned.
The rising price of fuel and food will push down next year’s GDP growth to the lowest rate since 1992, the forecast added.
Inflation will grow to a high of 3.8% this year, and will remain above 3% for at least 10 months. If inflation rises just one percentage point above the 2% set by the government, the governor has to explain why to the chancellor.
It is thought building trade workers and those in the financial services industry will be hit hardest by the job cuts.
However, the CBI said there are no signs to show the UK is moving towards a recession.
Richard Lambert, the CBI’s director-general said: “It is important to remember this is not a forecast for recession. Back in the early 1990s, we had a prolonged period of plummeting consumer demand and there were large job cuts across the board.
“These days, firms are leaner and more efficient and our economy’s reach is far more global. We should avoid believing a recession is inevitable, or talk ourselves into unnecessary trouble.”