By Matthew Legg Business Editor

Last updated 12:48, Friday, 29 August 2008

UNEMPLOYMENT will break the two million barrier in the next two years as the UK’s economy shudders to a halt.

Rob Johnston: Businesses are facing two ‘very difficult’ years

That’s the bleak prediction of Cumbria Chamber of Commerce and Industry chief Rob Johnston.

Commenting on a gloomy economic forecast by the British Chambers of Commerce – released this week – Mr Johnston said an interventionist economic policy was now required to ward off the worst of the impending slowdown.

The report claims British businesses are facing two “very difficult” years, with a technical recession possible and unemployment likely to increase by 250,000 to 300,000.

Mr Johnston has joined growing calls from business to cut interest rates in response.

He added: “While a marked slowdown in activity is likely over the next 18 months, even if interest rates are cut, the correct policy decisions are still needed to ward off the threat of a serious and prolonged recession.

“The longer the Bank of England Monetary Policy Committee (which sets interest rates) waits before cutting interest rates, the bigger the danger that the economic situation will deteriorate.

“Our forecast highlights a significant worsening in UK economic prospects and a distinct possibility of technical recession.

“The level of UK unemployment is likely to increase by nearly 300,000 over the next few years, reaching almost two million and an increase above two million cannot be ruled out. Over the next two or three quarters we expect growth to be slightly negative or zero, with a shallow recovery after that.

“The period of weak growth is likely to be prolonged, lasting until late 2009 or early 2010.

“Our view is that the threats to growth are more serious and more immediate than the risks of higher inflation.

“The UK economy urgently needs an interest rate cut to counter threats of recession.”

Mr Johnston has called for a cut in interest rates to 4.75 per cent in the fourth quarter of 2008, followed by an additional cut to 4.5 per cent early in 2009.

He added: “A marked slowdown in UK activity is highly likely over the next 18 months, even if interest rates are cut in line with this forecast.

“If the MPC decides not to cut rates in the next three to six months, growth prospects will be worse.

“Government temptation to raise business taxes because it is running out of money, must be forcefully resisted.”