The recession will be "deeper and longer" than previously thought, the CBI business group has warned.
The CBI predicts the recession will run for almost all of 2009, with growth hit by the dramatic falls in confidence and business activity in the wake of the recent financial turmoil.
Its previous survey - carried out before the collapse of Lehman Brothers plunged the global banking sector into deeper turmoil - had looked for 0.3% growth next year, but it now predicts a 1.7% contraction.
John Cridland, CBI deputy director-general, said the speed and force of the downturn had forced it to reassess the coming recession, which they had previously expected to be "short and shallow".
"The recession here in the UK looks to be deeper and longer lasting than we predicted only two months ago," he said.
The downbeat assessment comes only two days after the British Chambers of Commerce (BCC) warned that unemployment could peak at 3.25 million - more than 10% of the workforce - if Government bids to kick start the economy were inadequate.
The CBI expects jobless figures to peak at around 2.9 million in 2010. It also predicted the Bank of England would lower rates again this year by up to 0.5% to stave off the downturn. Inflation is forecast to fall to 1.7% by the end of 2009 - below the Bank's 2% target - and hit a further low of 1.1% in 2010.
Ian McCafferty, the CBI's chief economic adviser, said: "In terms of December, I think there is a very high possibility that they will cut again. I would expect it to be between a quarter and half a percent."
He said he "would not want to rule out any level" when asked whether rates would eventually hit 0%. There were increasing signs the credit crunch had reached the corporate sector as companies found it increasingly difficult to access capital. If credit lines continued to be "gummed up", the CBI's assessment would have to be reviewed again, he added.
The CBI said a drop in consumer confidence would cause household spending to slump in 2009, with consumption falling by 1.8%. Public borrowing was also expected to soar to £93.8 billion, or 6.4% of GDP, in 2009/10 from £69.9 billion, in 2008/9.
