Unemployment will soar to 3.4 million as the financial crisis deepens, forecasters predict ahead of official jobless figures this week.
The Ernst & Young Item Club says the number of those out of work in the UK will pass 3.25 million by the end of 2010, and hit 3.4 million in 2011.
"All of the economic statistics are now in free-fall," it said in its forecast.
It warned the next 12 months would see the UK economy suffer its largest contraction since 1946.
The UK's gross domestic product would shrink by 2.7% in 2009 and another 0.5% the following year, the Item Club said in its latest report on the UK economy.
The official unemployment total reached a 10-year high of 1.86 million last October and some analysts expect the figure to increase to two million when new figures are published on Wednesday.
'Depression' warning
The group says that inflation and interest rates will stay close to zero, helping pensioners and those with tracker mortgages.
However, it said these conditions will do little to aid the housing market, set to fall 22% more over the next 18 months as it remains starved of finance for new mortgages. Meanwhile banks will be unable to lend to companies and consumers until the US sorts out its own banking problems.
"The government has failed to stop bankers hoarding cash and it seems this panicky behaviour is spreading out to the rest of the economy," the group warned.
The Item Club predicts that business investment will fall by nearly 17% this year, dropping almost another 6% in 2010 as worried company treasurers sit on cash.
In addition, consumer spending is expected to shrink 2.6% in 2009 as employees fearing for their jobs become "much more cautious" consumers.
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