UK may already be in mild recession, says CBI, predicting unemployment in 2009 will be highest for 17 years

The CBI has called on the Bank of England to cut it benchmark interest rate to 4.5% in November and then 4% early next year, to boost the UK's flagging economy.

Describing the UK as perhaps already in “mild recession”, it has forecast that the economy will contract 0.2% in the third quarter of this year and 0.1% the following quarter.

Growth will slump to a “feeble” 0.3% next year, according to the CBI's new predictions, following full-year growth during 2008 of 1.1%.

The CBI has also forecast a rise in the unemployment rate next year to 6.5%, the highest level for 17 years, with a total 2.01 million people out of work.

Rising energy and commodity prices as well as the credit crunch were cited as key reasons for the UK economy's recent struggles.

Richard Lambert, director-general of the CBI, said: “Growth in 2009 will be feeble at best. Having experienced a rapid loss of momentum in the economy over the first half of 2008, the UK may have entered a mild recession.”