Britain will suffer a deeper recession than any other mature EU economy, with a contraction of 1% next year and only 0.4% growth in 2010, the European commission said today.

The EC's latest half-yearly forecast predicts UK unemployment will rise from 5.3% in 2007 to 7.1% in 2009 — which would bring the number out of work to about 2.25 million.

It expects the budget deficit to jump to 5.6% next year, which would be around £80bn, and 6.5%, or £94bn, in 2010. Government debt is forecast to rise by more than 15 percentage points to more than 60% of GDP in 2010-11. The figures would break stability and growth limits set by the EU's stability and growth pact.

The bleak EU forecasts blow a hole in the government's assertion it has been running the EU's model economy for the past decade.

Britain's contraction will be worse even that that of Ireland, which is forecast to shrink 0.9% in 2009 but recover to 2.4% growth in 2010. Ireland's budget deficit is forecast to be higher, at 6.8% of GDP in 2009 and 7.2% in 2010.

Only Estonia and Latvia are expected to suffer deeper recessions in 2009, contracting 1.2% and 2.7% respectively. Germany, France and Italy, the eurozone's three biggest economies, are expected to stagnate.

Presenting his "dark" forecast, Joaquín Almunia, economic and monetary affairs commissioner, said it was highly uncertain and volatile given the fragile state of global financial markets.

He indicated tension had eased in inter-bank lending after the co-ordinated stabilisation plans adopted by governments in recent weeks.

But he insisted the EC would stick to its revised stability and growth pact, with the UK expected to receive a warning early in the new year. The UK is already in the so-called excessive deficit procedure but cannot be sanctioned as it is not part of the eurozone.

Senior EC economists said: "The central outlook (for Britain) envisages a marked fall in private consumption in 2009 and 2010, driven by more restrictive borrowing conditions and lower household wealth."

Presenting a bleak picture of falling housing prices, falling living standards and rising joblessness, they said: "The heightened unemployment risk is also likely to prompt increases in savings from their currently very low level."

The EC is forecasting a gradual recovery in the eurozone and most of the rest of the 27 EU member states in the second half of next year but this is unlikely in Britain until 2010, with business investment shrinking until the end of 2009. Inflation is likely to fall to 1.2% in 2010.

The forecast comes ahead of this week's expected decisions by both the bank of England and European Central Bank to cut interest rates by up to 0.5 percentage points as governments adopt fiscal stimulus packages to help lead the way out of recession across Europe.