Unemployment, previously forecast to fall in 2008, is now predicted to rise to 1.70 million in 2009, according to the Confederation of British Industry (CBI.

The revised prediction is due to slower economic growth, said the CBI, which has downgraded its forecast for UK growth in 2008 for the third quarter running, due to the credit crunch and high oil prices.

Ian McCafferty, the CBI's chief economic adviser, said: "Whilst the 2008 slowdown may appear dramatic set against this year's strong growth, the fundamentals of our economy remain sound and talk of a full blown recession is overstated.

"Uncertainty surrounds the extent to which current credit conditions will affect both business and consumer confidence and how far the property markets will suffer. Borrowing conditions are already tighter for some households and businesses.

"Another key factor is the price of oil, which has risen by 20 per cent since September. A prolonged period of high oil prices will add to inflationary pressures, whilst putting a squeeze on profits and discretionary spending, compounding the slowdown."

Average earnings growth is forecast to remain at 4.0 per cent next year, before weakening slightly to 3.9 per cent in 2009.