The UK is already in a recession, with business confidence, profits and turnover now at record lows and unemployment set to rise by up to 350,000 in the next year, according to an "alarming" new report.

An authoritative survey of 5,000 firms by the British Chambers of Commerce (BCC) showed a worsening economic outlook and rising unemployment amid a "collapse" in confidence across all sectors of industry.

The business group said it was clear the UK was now in a "worsening" recession and urged the Government and the Bank of England to take urgent action to avoid a "major" recession.

The Bank's monetary policy committee (MPC) was urged to cut interest rates by 0.5% this week, while the Government was told it should slash business taxes.

Employment expectations among the firms polled were the worst since 1993 and the BCC warned that the jobless total was expected to increase by between 300,000 and 350,000 over the next 12-24 months, which would take the total over the two million mark.

The survey results, for the third quarter of the year, were "exceptionally bad" and included "worryingly weak" investment plans by manufacturers and weaker exports.

David Kern, economic advisor to the BCC, said: "The alarming results point to worsening dangers of major economic downturn and rising unemployment. The results support the view that a UK recession has started and the downturn is getting worse. The domestic economy is under immense pressure.

"The mounting global banking crisis reinforces our view that immediate threats to growth are more critical than dangers of higher inflation. Without forceful and urgent corrective action, there is a serious danger that the recession will deepen and cause huge damage. The MPC must cut interest rates without delay, with a 0.5% cut on Thursday. Over the next four months, interest rates must be cut to 4% as a minimum."

Director general David Frost maintained that despite the economic gloom, firms were still "pretty optimistic", but he urged politicians to get behind businesses to help them cope with these "challenging" times.

The report added: "All the domestic balances are in negative territory for all firm sizes, in both manufacturing and services. The collapse in all the confidence balances to record lows, across both sectors, is a particularly disturbing and ominous development."

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