The UK’s economy is already in recession and the financial situation is about to get considerably worse, according to one leading business group.

The stark warning comes from the British Chambers of Commerce (BCC) who have called for urgent action from the government and the Bank of England to restore consumer confidence in the manufacturing and service sectors.

The BCC, which conducted its quarterly survey of 5,000 British businesses, claims that unemployment could rise by as much as 350,000 in the next 12 months.

The survey came as figures showed UK manufacturing output in August had fallen for a sixth consecutive month.

Figures from the Office for National Statistics (ONS) showed that manufacturing output had reduced by 0.4% in August, and had dropped 1.9% from the same point last year. The manufacturing sector has not declined for six months in a row since late 1980.

Technically the UK is not yet in recession - defined as two consecutive quarters of negative economic growth, but the BCC has branded the current economic downturn as “exceptionally bad” and called on the Bank of England to reduce interest rates on Thursday in an attempt to stimulate the housing market.

BCC Director-General David Frost said: "We are clearly in a very difficult economic period but it is important that we retain a sense of proportion.

"Many parts of the business community continue to perform well. The government needs to say that business taxes will be cut.

"The Bank of England needs to cut interest rates immediately and politicians need to get behind our businesses in these challenging times."