Cut business red tape, Darling told

The British Chambers of Commerce (BCC) also predicts unemployment will peak at 3.2 million in the third quarter of 2010.

Its latest quarterly survey of 6,500 firms showed manufacturers being hit hardest by the downturn as help from a weak pound is offset by slumping demand, and the UK economy shrinking by more than 3%.

Director-general David Frost called for action from Mr Darling with the Budget just two weeks away. He said: "The Budget is an opportunity for the Government to show business that it is doing everything possible to support them."

The BCC wants measures such as rate relief for small businesses to be made automatic to prevent the money going unclaimed, as well as incoming laws on agency workers delayed as long as possible.

The organisation has also called for a three-year moratorium on non-essential government activity that imposes a cost on business.

The call came as the BCC said a "disturbing" decline among manufacturers has seen indicators for domestic demand, employment and business confidence fall to their lowest point in the 20-year history of the survey.

Confidence in profitability and revenues among manufacturers is in short supply across all 12 UK regions, with more firms expecting decline than improvement.

Firms in the Eastern region are most pessimistic over turnover, while those in the South East took the bleakest view of profitability. Exports have also been hit, with West Midlands firms registering the biggest fall-off in export sales.

A 3% fall in output would would make 2009 the worst single year since the Second World War.