Pithaly

By Nick Allen
Last Updated: 10:15am BST 08/07/2008

Britain is on the brink of a recession and unemployment is set to rise 300,000 by the end of next year, according to the British Chambers of Commerce.

In a dire warning it said the economic outlook for the business sector was "grim and ominous" and the downturn could be "longer and nastier" than previously expected. The report followed a survey of 5,000 large and small businesses across the country and led to calls for an early cut in interest rates amid concerns that the economy is showing parallels with the start of the recession in the early 1990s.

However, the Bank of England's Monetary Policy Committee is likely to ignore the pleas when it meets on Thursday as it battles inflation currently running above 3 per cent.

The pessimistic forecast came as one of the City’s leading banks warned that it could take 20 years for the British housing market to recover. In a note to clients Mark Hake, an analyst at Merrill Lynch said: "[Compared] with the 1990 correction... it looks significantly worse, with house prices falling faster and further and very little recovery in real terms expected over 20 years."

He added: "House prices are expected to be below their August 2007 peak in a further 10 years' time."

The investment bank expects prices to fall 17 per cent this year. Inflation is likely to continue rising in coming months as the economy absorbs the effects of higher oil and food prices.

http://www.telegraph.co.uk/money/main.jhtml?xml=/money/2008/07/08/nborrow708.xml