The CBI has become the latest group to forecast the UK will slide into a recession this year.
The business lobby group predicts the economy will shrink by 0.2% between July and September, followed by a further 0.1% decline in the fourth quarter.
Bosses stressed the downturn would be a "shallow recession", and not a return to the prolonged early 1990s downturn. But the organisation also slashed next year's UK growth forecast by 1%, predicting the economy will grow by a "feeble" 0.3% during the whole of 2009 - the lowest rate since 1992. And unemployment will also top the two million mark next year, it said, up from 1.67 million out of work between April and June.
The CBI's downturn warning - which assumes rates come down by 0.5% by the year end and the same amount by March - follows similar predictions from the European Commission and Paris-based think tank, the OECD. The British Chambers of Commerce has also predicted the country will slip into a recession.
CBI director general Richard Lambert blamed the economic woes on consumer spending cutbacks thanks to the sharp rises in fuel and food costs, as well as the troubled housing market which has battered confidence.
He said: "Over the past year our forecasts for economic growth have been shaved lower and lower as the UK economy continues to struggle with the twin impact of higher energy and commodity prices and the credit crunch. Growth in 2009 will be feeble at best. Having experienced a rapid loss of momentum in the economy over the first half of 2008, the UK may have entered a mild recession that will hopefully prove short lived."
He added: "This is not a return to the 1990s, when job cuts and a slump in demand were far more prolonged."
The CBI cut this year's growth forecast down to 1.1%, from 1.7%. It also said CPI inflation should peak at 4.8% this quarter - up from 4.4% in July - but thanks to further easing in commodity prices and the weaker economy, the cost of living index was expected to fall back "quite rapidly" over 2009.
That will allow the Bank to make a series of rate cuts to bring the base rate down to 4% by next spring, the CBI said.
Mr Lambert said if the situation did not worsen, the Bank of England could be in a position to slash rates by 0.5% in November. "The Bank of England should have leeway to cut interest rates and, as inflation falls, we should be well placed to move beyond this difficult stage in the business cycle," he said. "If all goes well there should be room for a half point cut in November to help restore confidence in the beleaguered economy."