Britain IS in recession and 500,000 will lose their job by the end of the year, CBI warns

The economy is in a recession and will not recover for at least a year, the Confederation of British Industry will warn today.

The business lobby group will also claim an extra 500,000 workers could lose their jobs by the end of next year.

The grim forecast is the first warning from an authoritative UK source that the world’s fifth-largest economy has plunged into negative territory.

Last week, the European Union and the Organisation for Economic Co-operation and Development gave similar warnings.

Richard Lambert, director general of the CBI, said both businesses and consumers are suffering a ‘very uncomfortable time’.

Although official figures do not confirm the county is in a recession - defined as two consecutive quarters of negative GDP growth - Government statistics often lag behind the true state of the economy.

The latest figures, for April to June, show GDP growth was 0 per cent.

The CBI will also say it expects the recession to trigger a sharp rise in the number of unemployed, raising the total to around 2.1million.

About 7 per cent of economically active workers will be unemployed, it will claim - the highest rate for more than a decade and larger than June’s forecast of 1.83million by the end of 2009.

The biggest casualties will be those who work in banking, housing and retail - sectors the CBI predicts will become the ‘epicentre’ of the unemployment storm.

To make matters worse, it also expects inflation, currently 4.4 per cent, to keep on rising for the next few months.

And the CBI will warn the trend of average pay rises for both public and private sector workers will continue to be lower than inflation.

Mr Lambert said: ‘The “R" word is obviously a big deal for politicians.

‘In the real world, if you talk to businesses people or households about a plus or a minus in the GDP figures, it does not make any difference at all. It is a very uncomfortable time.’

However, the CBI will strike a more positive note when it predicts that the recession is expected to be short-lived, lasting for around six months.

For this reason, employers are likely to try to keep workers rather than sack them and award them pay-offs, it will add.