Britain's economy will shrink by 4.3 percent in 2009 before recovering to grow by 1.1 percent in 2010, the British Chambers of Commerce said in a quarterly update to its forecasts on Sunday.
The projections are broadly in line with the trend in recent figures from the Organisation for Economic Co-operation and Development and the International Monetary Fund, which cut their 2009 growth estimates for Britain and raised them for 2010.
"The upturn in the economy has probably already started and we could see a relatively strong bounce-back in the next few quarters. But sustaining the recovery will be very challenging and the risks of a relapse are high," said David Kern, chief economist at the BCC.
Unemployment was likely to rise to just over 3 million in mid-2010, equivalent to 9.6 percent of the workforce.
In June the BCC had forecast the economy would shrink by 3.8 percent in 2009 before growing by 0.6 next year, and that unemployment would hit 3.2 million.
The business organisation, which represents over 100,000 firms employing 5 million people, said Britain needed to cut public spending in all areas apart from business infrastructure to avoid endangering its triple-A credit rating. "Given the perilous state of our public finances, we cannot afford to ring-fence other spending categories, no matter how desirable it may be," Kern said.
"It is vital that new business taxes, higher National Insurance contributions, and any measures that may damage enterprise and job creation are avoided," he added.