The economic think-tank said the UK's GDP will shrink in the final quarter of 2011 and the first quarter of 2012 - the first time it has predicted a double-dip recession for the UK.

It believes the UK's faltering economy will grow by just 0.5% in 2012, down from its previous estimate of 1.8% in May, as it is hit by weak demand for exports, the Government's austerity measures and the squeeze in consumer spending.

The OECD also said unemployment, which currently stands at 8.3% - its highest since 1996 - will rise to 9% in 2013 as jobs figures take a worse hit than in the recession following the banking crisis.

It said more economy-boosting quantitative easing measures from the Bank of England are "warranted", adding that it expects the stock of asset purchases to rise to £400 billion early next year from £275 billion currently.

George Osborne

The OECD's forecast comes ahead of Chancellor George Osborne's Autumn Statement tomorrow in which he is set to announce a series of measures including credit easing to boost prospects.

The OECD said the slump will be modest compared with previous recessions and the economy is set to start recovering after two quarters of decline. It expects GDP growth of 1.8% in 2013.

But it also warned that there are downside risks to its forecasts and the downturn could turn out to be deeper than projected, as the eurozone debt crisis has the potential to hit the banking sector and weaken confidence.

It warned that it may become necessary to pump more money into banks to help shore up the financial system. While it would be "preferable" for banks to raise the money from private investors, it warned that the Government needs to be prepared to step in.

The Chancellor may also have to consider easing his programme of spending cuts but it warned that he will still have to increase austerity measures later on to ensure medium-term targets are met. It suggested the Government could further increase the retirement age to improve long-term prospects.

The economic forecast predicts more unemployment 

And employment is likely to take a bigger hit this time around because businesses have less scope to reduce wages and adjust the amount of time employees' work.

The OECD called on the Government to pump more resources into employment training to help mitigate the impact of rising unemployment, particularly for young people who are already suffering a 20% rate of joblessness.

With the eurozone already appearing to be in "mild" recession, the OECD said the European debt crisis remains "the key risk" to the world economy.

It added that urgent action was needed to stop the crisis from escalating, including a "substantial" increase in the eurozone bailout fund.

The OECD also called for the European Central Bank to play a greater role in shoring up the finances of debt-ridden nations.

It said: "If not addressed, recent contagion to countries thought to have relatively solid public finances could massively escalate economic disruption."

Emerging nations are growing more slowly than previously and there was also a danger the US could slip back into recession amid its austerity measures, according to its forecast.

Asked about the OECD forecast, Chancellor George Osborne said: "What is clear from the OECD is that these are very difficult times for many countries in the Western world. The OECD is predicting deep recessions in many European countries. That is a challenge for Britain.

"What we can do with our policies is take Britain safely through this storm. But we have got to lay the foundations for future economic success."

By Mirror