Britain is headed toward recession and unemployment could hit nearly two million and could get worse unless interest rates are slashed, the British Chambers of Commerce has claimed.
Policy choices are likely to become "more difficult and unpleasant" over the next two to three years, the British Chambers of Commerce (BCC) said in its quarterly economic forecast, as recession is imminent.
The BCC predicted UK unemployment is likely to increase by some 250,000-300,000 over the next two to three years, which would take unemployment to nearly two million.
An increase above this level cannot be ruled out, if the Bank of England fails to cut the interest rate, the BCC added.
BCC director general David Frost said: "While a marked slowdown in activity is likely over the next 18 months, even if interest rates are cut when inflation peaks, the correct policy decisions are still needed to ward off the threats of a serious and prolonged recession.
"The longer the MPC waits before cutting rates, the bigger the danger that the economic situation would deteriorate."
The report predicts UK GDP growth to be slightly negative or zero over the next two or three quarters.
Although a shallow recovery is predicted after this time, the period of weak, below-trend, growth is likely to be prolonged, lasting until the final months of 2009 or early in 2010, the BCC said.
David Kern, economic adviser to the BCC, said: "Our view is that the threats to growth are more serious and more immediate than the risks of higher inflation.
"Our central scenario envisages that the UK Bank Rate would be cut to 4.75 per cent in quarter four 2008, followed by an additional cut to 4.50 per cent in quarter one 2009.
"A marked slowdown in UK activity is highly likely over the next 18 months, even if interest rates are cut in line with our central forecast. But, if the MPC decides not to cut rates in the next three to six months, growth prospects would be worse than in our central scenario."