The UK economy is already in recession and will shrink by 1% in 2009, according to the Ernst & Young Item Club.

The survey is significant as it uses the same criteria as the government to gauge the health of the economy, and joins the British Chambers of Commerce in claiming a recession is already here.

"Even if equity markets stabilise and we begin to see capital flowing around the international financial system again, we are still looking at a domestic and global economy that will be in recession for the next 12 months," said the Item Club's chief economist Peter Spencer.

But the organisation also predicted inflation would fall in the next 12 months, allowing interest rates to be cut. It also forecast growth of 1% in 2010.