Britain's economy is forecast to shrink 0.1 percent in 2012, but to rebound in 2013 if the eurozone debt crisis is resolved, according to a thinktank research report on Friday.
The National Institute of Economic and Social Research (NIESR) said Britain's economy is estimated to grow 2.3 percent in 2013.
NIESR warned of return of recession the first half of this year as austerity measures continue to take hold. It said Britain is already close to another recession - defined as two consecutive quarters of economic contraction - after official figures showed that the economy shrank by 0.2 percent in the final three months of 2011.
The 0.2 percent decrease in gross domestic product (GDP) marks a sharp drop in economic growth in Britain from the third quarter of 2011, when GDP was up 0.6 percent.
Unemployment will rise to 9.1 percent and may not ever return to its pre-crisis level without action by the government to boost near-term spending, according to the NIESR report on Britain and world economy.
Unemployment currently stands at 8.4 percent, and is forecast to remain above 7 percent in 2014.
NIESR suggested the government to ease the austerity drive, and boost spending in infrastructure projects.
The thinktank predicted that inflation would fall sharply, with the consumer price index down to 2.2 percent this year and 1.4 percent in 2013.