Think-tank NIESR has warned rising unemployment rates, which will hit 9% by the end of the year, will do permanent damage to the UK's productive capacity.
NIESR said it expected the unemployment rate to rise to 9% from its current rate of about 8.3% by the end of 2012.
"Elevated unemployment for such a long period is likely to do permanent damage to the supply side of the economy, with large long-run economic costs," read the report.
In addition, NIESR increased its forecast for UK inflation as a result of rising oil prices, but said it expects inflation to fall back to below the 2% target by the end of the year.
In the think-tank's report on the prospects for the UK economy, it maintained its growth forecast for UK GDP at near 0% for 2012, and 2% for 2013, unchanged since January.
It added that persistent weakness seen by the UK economy is "unprecedented" as growth levels remain well over 4% below pre-crisis peak, four years on from the recession.
"This clearly does not constitute a sustained recovery, so the question of whether or not the economy is technically in a double-dip recession is moot.
"But from the start of next year we expect more robust growth, with a sustained period of above-potential growth from 2014, which is necessary to reduce the output and unemployment gaps."
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