Unemployment expected to soar as economy declines

Unemployment could rise close to 3 million, according to a revised economic outlook by the CBI.

The business group says the recession could be longer than initially feared, and predicts the downturn which began in the third quarter of 2008 will run throughout 2009, with unemployment peaking at around 2.9 million - up from the current 1.8 million.

This would see the number of people without a job approaching levels seen in the early 1980s, when the number of unemployed surpassed 3 million.

The CBI's forecast for GDP growth for 2008 has been downgraded from 1.1% to 0.8%, while the group expects GDP to contract by 1.7% next year - downgraded from the 0.3% growth that was predicted two months ago.

In addition, the CBI predicts that the Bank of England could cut interest rates to as low as 1.5%, and that net public borrowing could increase from around £70 billion for 2008/2009 to almost £94 billion to following year.

John Cridland, CBI deputy director-general, said: "Since our last forecast was published in September the banking system has come under immense strain, sending consumer and business confidence plummeting in its wake.

"What is clear is that the short and shallow recession we had hoped for a matter of months ago is now likely to be deeper and longer lasting."

IMAGELewis Whyld/PA Wire