The economic slowdown is set to be more prolonged than anticipated and will prompt recession-like conditions, the CBI, Britain's biggest employers' organisation, believes.

Continued tightening of credit will put the brakes on the economy well into next year, something that led Ian McCafferty, the CBI's economic adviser, to say: “It's as much a 2009 story as 2008.”

Richard Lambert, the CBI's Director-General, said that even a slowdown that avoided a “technical recession” would feel “downbeat ... It is going to feel quite difficult as far as business was concerned.”

The employers' concerns will be a blow to the Government. In the Budget, the Chancellor forecast that the economy would rebound next year.

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The CBI, in line with many analysts, is adamant that the slowdown will persist. It said that unless the scarcity of liquidity in the credit markets was addressed, the effects could be even more pronounced.

The CBI revised down its forecast for GDP from 2 per cent to 1.8 per cent this year. It expects that next year this will slow to 1.7 per cent, down from its previous estimate of 2.1 per cent.

The group forecasts that growth will dip to only 1.3 per cent between October this year and March next year, before rising to 2.3 per cent in the final three months of 2009 and picking up further in 2010.

Household spending is also set to slow more sharply than previously thought, it believes, as households feel the pressure of soaring mortgage, energy and food prices.

The CBI said that household spending would rise by 1.6 per cent this year, down from its previous forecast of 1.9 per cent. Spending grew by 3.1 per cent last year.

Homeowners hoping for a dip in mortgage rates, which are soaring as a result of higher interbank lending rates, are likely to be in for a disappointment. Mr McCafferty said: “With their fingers burnt . . . [banks] will be risk averse for some time.”

While growth slows, inflation is set to rise. The CBI forecasts that businesses will be forced to pass on increasing costs to buyers, pushing inflation to a peak of 3.2 per cent between July and September this year, far above the Bank of England's target rate of 2 per cent.

Mr McCafferty said: “We believe that the spectre of higher inflation in the short term limits the extent to which the Bank can cut rates.”

However, the CBI said that businesses were holding up well in the face of the economic gloom.

Mr Lambert said that business managers were more resilient than in previous downturns, but he said that they would have to show leadership to “push against the forces of protectionism”.

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