The UK faces 12 to 18 months of “serious grief” with the loss of about 1.4 million jobs – although the economy has halted its downward spiral, an influential survey has warned.

The Ernst & Young ITEM Club Spring forecast expects GDP to contract by 3.5 per cent in 2009 and 0.1 per cent in 2010 – but says the economy is no longer in freefall with a recovery likely next spring.

Peter Spencer, chief economic adviser to the Ernst & Young ITEM Club, said the UK economy was far from out of the woods. “Although one or two positive signs have started to appear, we face another 12-18 months of serious grief. Around nine hundred thousand jobs will be lost this year and half a million next. Consumption will fall by nearly four per cent over this period as people worry increasingly about job security.

“This recession is unusual in terms of the degree of monetary and financial stimulus that has been applied. The whole kitchen sink has been thrown at the problem – whereas normally monetary policy would have to be tightened to bring down inflation.

“That is why I believe the hopeful signs seen in recent weeks mark a turning point rather than the false dawn that appeared so cruelly in 1931.”

Ronnie Bowker, Ernst and Young’s senior partner in Birmingham, said: “Although there may be signs which may point towards signs of a recovery in the medium term, the manufacturing sector, not only in the West Midlands but across the whole of the UK, has been one of the hardest hit and continues to feel the strain.

“While sectors such as financial services or technology may be the first to bounce back when the economy begins its upwards trajectory, manufacturers might end up feeling the effects of this recession for some time to come.”

Mr Bowker said the automotive industry, integral to the success of manufacturing in the region, had faced “extremely harsh” trading conditions over the last six months.

“The SMMT UK automotive production statistics for February were down 59 per cent year on year and there are suggestions that the reduction in the UK is far greater than across Europe. With that said, there has been positive news in recent weeks which saw Jaguar Land Rover secure a £340 million grant approved by the European Investment Bank.”