Treasury minister Stephen Timms today suggested the recession will be over before the end of the year.

The East Ham MP told the Evening Standard the UK economy will recover from the downturn in the second half of 2009. He also said the Government is doing “everything we can to support business through this difficult time”.

His bullish outlook for the economy came less than two weeks before the Budget and split opinion in the City.

Asked if he agreed with the Chancellor's assessment in November that the UK will recover in the second half of the year, Timms said: “I wouldn't rule it out. The question is when in the second half of the year and we will be a bit clearer about what we expect when we publish the Budget forecast.”

It came a day after a leading think tank, the National Institute of Economic and Social Research, forecast no recovery until 2012.

Alistair Darling delivers the Budget on 22 April against the backdrop of the worst financial crisis since the Great Depression and the first UK recession in nearly two decades.

At the Pre-Budget Report (PBR) in November, the Chancellor said output would fall for the first two quarters of this year before recovering, but he has since admitted the recession will be worse and is expected to downgrade his forecasts in the Budget.

Timms, who is Financial Secretary to the Treasury, today hinted the downgrades may not be as dramatic as feared. The Bank of England, the World Bank and the International Monetary Fund have recently predicted the UK economy will shrink by 3% to 4% this year.

“We are in for a difficult few months,” conceded Timms. “All the forecasts have gone in the wrong direction since the PBR and our forecasts at the time of the Budget will need to reflect what has happened over the last few months.”

His comments came as the Bank of England met to fix interest rates and consider the next step in its programme of quantitative easing. The Bank was set to leave rates on hold having reduced them to an all-time low of 0.5%.

David Page, economist at Investec Securities, said he “totally agreed” with Timms and forecast the economy to grow in the second half of the year thanks to a recovery in the service sector.

But Howard Archer of Global Insight said: “I think that is pretty optimistic. One or two pieces of modestly improved data over the last few days have led to some talk of emerging green shoots of recovery, but there are an awful lot of weeds still around them.”

Timms said the help the Government is giving to business would drag the UK out of recession.

He said more than 106,000 firms have already signed up to the Time to Pay scheme, allowing companies to defer £1.8 billion in tax payments until they can afford it. Some 11,900 businesses in London have joined the scheme. A further £211 million of loans have been offered to 1900 small businesses through the Enterprise Finance Guarantee Scheme under which the Government stands behind bank lending.

“We are doing a great deal,” said Timms. “We have got in place measures which have been greatly appreciated by businesses. “The key is businesses have access to lending and we have done a great deal on that. There's now quite a lot to show for all the things we have been putting in place.”

Timms also highlighted agreements struck with nationalised banks to increase lending to business as well as homebuyers.

Royal Bank of Scotland, now 70.3% owned by the state, has pledged to lend £25 billion this year through £9 billion of mortgages and £16 billion in business loans.

Lloyds Banking Group, formed by the Government-backed merger of Lloyds TSB and Halifax owner HBOS, has pledged £14 billion including £11 billion of loans to business.

The Government is under pressure to force banks to lend to businesses and consumers as recession bites.