BUSINESS group the CBI today added its voice to the growing gloom surrounding the economy as it warned of a "tougher and longer" recession than previously thought.

Just two months after forecasting slight growth in the UK economy in 2009, the CBI said GDP was likely to contract by 1.7 per cent.

The group, which represents nearly a 250,000 businesses in Britain, said the banking system had come under "immense strain" since it published its last forecast at the end of the summer.

CBI Scotland director Iain McMillan admitted the prospects in the short term for the Scottish economy looked bleak as he reiterated a 15-point action plan to help businesses cope with the downturn.

Today's report comes just two days after the British Chambers of Commerce (BCC) predicted five quarters of negative growth – suggesting a UK recession will last until at least the tail end of 2009.

Both organisations offer up dire predictions for employment and the state of the public finances. While the CBI reckons the number of people out of work will peak at 2.9 million in 2010, the BCC believes the jobless tally could break the three million mark – raising the spectre of the highest unemployment rate for 15 years.

On government borrowing, the CBI has pencilled in a net figure of just under £94 billion for the 2009-10 financial year, although the BCC estimates borrowing could surpass £110bn.

CBI deputy director-general John Cridland said the speed and force of the downturn had forced the group to reassess the coming recession. "The short and shallow recession we had hoped for a matter of months ago is now likely to be deeper and longer lasting," he said.

"An unwelcome consequence of the downturn will be a significant loss of jobs, many of them in sectors that have been relatively insulated until now."

McMillan added: "Scotland's economy has been growing at a modest rate over recent years. However, the chances of sustaining that, let alone improving on it, look impossible in the short term.

"CBI Scotland has published a 15-point action plan, calling on the devolved government to take further actions to help firms and the economy, including cuts to business rates."

The CBI also predicted the Bank of England would make a series of interest rate cuts taking the cost of borrowing as low as 1.5 per cent next year – half the current level. Inflation is forecast to fall to 1.7 per cent by the end of 2009 – below the central bank's 2 per cent target – and hit a further low of 1.1 per cent in 2010.

Investment forecasts have been downgraded on the back of a slide in business confidence. The CBI predicts that fixed investment will shrink by 3.8 per cent this year and 10.5 per cent in 2009.

Ian McCafferty, CBI chief economic adviser, said: "2009 is going to be a very tough year for business, with the sharpest fall in GDP since 1991.

"Since October's financial turmoil, companies have started to report that, for the first time, they are finding it increasingly difficult to access capital."

The BCC has warned that the government may have to play a "direct role" in the provision of finance to businesses if credit markets remain paralysed.

Confidence plunges to six-year low

CONFIDENCE among UK businesses hit a fresh low last month as firms became increasingly pessimistic about the outlook for the economy, according to a new report today.

A survey of 200 companies by Lloyds TSB showed that optimism plunged to its lowest level since the study was launched in 2002. Seven out of ten firms were gloomy about the state of the economy, with one in four fearing that business activity would fall over the next year.

Trevor Williams, chief economist at Lloyds TSB Corporate Markets, said: "In a case of every cloud has a silver lining, the weak pound should, in time, give a welcome boost to the manufacturing sector.

"UK manufacturing output has declined in recent years, but those businesses that are left are highly productive and can take advantage of the accelerated fall in the pound to compete aggressively overseas, even as global growth prospects dim."