The UK will enter a recession as severe as that of 1991, with the economy shrinking 2.5% from its peak before reaching a trough late next year, according to a sharply revised forecast from employers’ body the CBI.

Unemployment is expected to reach 9% by 2010, leaving nearly 3m people out of work. In 2009, the economy is expected to contract by 1.7% against a growth forecast of 0.3% made in September.

The CBI took the unusual step of issuing a revised quarterly forecast just two months after its outlook in September predicted a short, shallow recession for the second half of this year.

Ian McCafferty, chief economic adviser to the CBI, said the financial crisis had dramatically changed the picture for business.

Financial Times