Page last updated at 09:40 GMT, Tuesday, 7 October 2008 10:40 UK

UK economy 'already in recession'

BCC Director-General David Frost: 'Strong action has to be taken now'

Britain is already in a recession, which is worsening and could see unemployment rise by 350,000 by next year, a business group has warned.

A quarterly survey of 5,000 businesses by the British Chambers of Commerce (BCC) says confidence has collapsed in both manufacturing and service sectors.

The firms call for urgent action from the government and the Bank of England.

The survey came as figures showed UK manufacturing output in August had fallen for a sixth consecutive month.

Figures from the Office for National Statistics (ONS) showed that manufacturing output had shrunk by 0.4% in August, and had dropped 1.9% from the same point last year. The manufacturing sector has not declined for six months in a row since late 1980.

The wider measure of industrial production had fallen by 0.6% in August, the ONS said, taking the annual rate of decline to 2.3%.

'Exceptionally bad'

Technically the UK is not yet in recession - defined as two consecutive quarters of negative economic growth.

But the BCC described its survey results as "exceptionally bad" and said the economy was under "immense pressure" for the second quarter in a row.

It also said the jobless total was expected to increase within two years.

People on the streets of Leeds react to the economic downturn

The BCC believes the number of people out of work will rise by between 300,000 and 350,000 over the next year or two, which would take the unemployment total to more than two million.

Confidence had collapsed in both the manufacturing and service industries, according to the survey.

The BCC represents small and medium sized companies, and argues that a recession has already begun.

It wants the Bank of England to do what it can to stimulate the economy, by cutting interest rates on Thursday.

Rate cut

BCC Director-General David Frost said: "We are clearly in a very difficult economic period but it is important that we retain a sense of proportion.

"Many parts of the business community continue to perform well. The government needs to say that business taxes will be cut.

"The Bank of England needs to cut interest rates immediately and politicians need to get behind our businesses in these challenging times."

Analysts said that the worse-than-expected industrial and manufacturing production figures had added to expectations that the Bank of England's Monetary Policy Committee (MPC) would cut interest rates on Thursday.

"[The figures are] a lot worse than the markets were expecting. The slowdown shows that the UK economy is suffering on all fronts," said David Page of Investec.

"We think this continues to argue for support for the UK economy which we expect to find coming from the MPC on Thursday."

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