The UK is “almost certainly” in the early stages of recession, the CBI employers’ organisation said on Monday, believing that growth will be “feeble at best” next year.

The CBI says the economy has begun shrinking this quarter, and will continue to do so over the rest of the year. If what they believe comes true, the country will face two consecutive quarters of contraction – meeting the common definition of a recession.

However, Richard Lambert, CBI director-general, believes the downturn is likely to be much milder than the recessions of the early 1990s and the early 1980s.

The assessment from the CBI comes days after the Organisation of Economic Co-operation and Development predicted that the UK will be the only big world economy to enter recession this year.

Mr Lambert says the Bank of England should be able to cut interest rates because Britain is “almost certainly in a recessionary phase”, which was likely to bring inflation down sharply.

The CBI today has cut its prediction for economic growth next year to just 0.3 percent, compared to its forecast of 1.3 percent, three months ago. It expects growth of just 1.1 percent – down from 1.7 percent – for the whole of 2008. However, the CBI has stressed that, for the moment at least, the outlook appears better than the last two big recessions.

The CBI forecasts a cumulative loss of output, from peak to trough, of 0.5 percent, compared with 2.5 percent in the recession of the early 1990s and 5 percent in the early 1980s.

“The R-word is a big deal for politicians, but out there in the real world a quarter point more or less of growth doesn’t make much difference, it just feels very tough,” says Mr Lambert.

“This is not a return to the 1990s when job cuts and a slump in demand were far more prolonged.”

Mr Lambert added that the CBI is hearing its first reports from members that SMEs are facing credit restrictions by banks.

The CBI is relatively optimistic about unemployment, predicting a rise from 1.7 million now to over 2 million in the second part of the year.

Mr Lambert believes that unemployment will increase only gradually because companies expect the downturn to be mild and relatively short. “The strong feeling is, provided companies think recession will be shallow and short, they will be prepared to hoard labour for that period,” he says.

The CBI’s bleak predictions make it more pessimistic than the Bank, which has forecast stagnation over the coming year followed by a gradual recovery in the second half of 2009. The CBI believes that “there is a significant risk that inflation will undershoot the Bank’s target”, especially if the Bank does not cut interest rates soon.