Unemployment is set to soar to 7.1 per cent as Britain suffers the longest and deepest recession of the EU's big economies, according to the European Commission.

The economy of the 15-nation eurozone was also heading into recession for the first time since the single currency was introduced in 1999, the Commission's autumn forecast, released yesterday, said.

The British economy was likely to contract by 1 per cent next year, officials said, in a reversal of April's forecast of 1.6 per cent growth. The outlook for British workers has also deteriorated sharply, with the Commission increasing its forecast for unemployment from 5.7 per cent to 7.1 per cent next year.

Britain is tipped to make a slow recovery from the downturn with growth of just 0.4 per cent in 2010 compared with 1 per cent in Germany, 0.8 per cent in France and 0.6 per cent in Italy. The eurozone would meet the definition of a recession with a 0.1 per cent contraction in growth in the third and fourth quarters of this year, following a 0.2 per cent reduction in March to June.

Joaquin Almunia, the Economic and Monetary Affairs Commissioner, said that economic activity across the full 27-member European Union would grind to a standstill next year with growth of 0.2 per cent, recovering to 1.1 per cent in 2010.

“The situation in the markets remains precarious and the crisis is not yet over. This means weaker growth,” Mr Almunia said.

The Commission's outlook for Britain is particularly bleak with a “budget deficit and debt spiral” forecast as the national economy contracts at its fastest rate since 1992.

The Commission expects the budget deficit in the UK to rise to 5.6 per cent next year, which would be about £80 billion, and 6.5 per cent, or £94 billion, in 2010, well above the 3 per cent limit suggested by EU rules.

A government spokesman said that the Treasury's updated forecasts for 2009 and 2010 would be set out in the Chancellor's Pre-Budget Report due to be presented to MPs later this month.

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