The UK economy is expected to shrink 3.5% this year and 0.1% in 2010, the Ernst & Young ITEM Club said Monday. The think tank sees output stabilizing by the end of this year, with a modest recovery beginning next spring.

Employment levels continued to fall. The forecast suggests that 900,000 jobs will be lost this year, and another 500,000 in 2010. Earnings growth subsidized and see further fall as the labor market weakness continues. Consumer spending is set to decrease 3.1% this year and a further 0.7% in 2010.

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