A new economic forecast suggests the UK economy has fallen back into recession.

The Ernst & Young Item Club said the UK has been left ‘paralysed’ as a result of the European debt crisis and unemployment could hit three million by the end of the year, the think-tank reported.

Ernst & Young Item Club has cut its GDP growth rate from 1.5% to 0.2% for this year with the prediction coming days after nine European economies have had their credit ratings downgraded, including France.

A report by The Ernst & Young Item Club stated: "Global uncertainty, and in particular the ongoing crisis in the Eurozone, has put the UK economy on hold. The UK is currently in a technical recession, and even if the Eurozone crisis is resolved promptly, it doesn't foresee the UK starting to recover until the autumn, when CPI inflation falls back to the 2% target.”

Professor Peter Spencer, chief economic advisor to the Ernst & Young ITEM Club, added: “Figures for the last quarter of 2011 and the first quarter of this year are likely to show that we are back in recession and we are going to have to wait until this summer before there are any signs of improvement. But it’s not going to be a repeat of 2009; we are not going to see a serious double dip.”

Spencer said he expected a further 300,000 people to add to the unemployed total, creating a “lengthy dole queue.”

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