The forecast comes as part of Cebr’s January 2012 United Kingdom Prospects report. It also forecast increased quantitative easing starting in February could reach £400bn by the end of 2012.

Inflation is forecast to steadily fall until it reaches 1.7 per cent in Q4 2012 then remain around the two per cent mark.

The think-tank also said the negative GDP growth in Q4 2011 and Q1 2012 means the UK is “probably already in a recession”.

As such, it has revised its growth forecast for 2012 from 0.7 per cent growth down to a decline of 0.4 per cent. If developments in the Eurozone continue to decline, this could be reduced further to a decline of 1.1 per cent.

Douglas McWilliams, chief executive of Cebr, said: “We take no pleasure in outlining such a bleak forecast. The Chancellor will not reduce deficit as quickly as he thinks since tax revenues will be depressed by slow growth. But this does not make the case for giving up on austerity.

“Indeed our forecast, which shows that UK debt to GDP ratio will go above 90 per cent means he will at the minimum have to keep the austerity programme going for much longer than he originally thought.”