The European Commission yesterday became the second heavyweight institution on the continent in nine days to predict UK recession in the second half of this year.

Its downbeat forecast for the UK came hard on the heels of the Paris-based Organisation for Economic Cooperation and Development's prediction last week that the country would fall into recession.

However, while agreeing the UK was likely to enter recession, the British Chambers of Commerce took exception to the European Commission's view that the eurozone as a whole is in better shape.

And, although the commission is forecasting the 15-nation eurozone and 27-country European Union will as blocs avoid recession in the second half, its forecasts point more towards stagnation than growth. Furthermore, economic output in the eurozone and EU fell by 0.2% and 0.1% respectively during the three months to June, when UK gross domestic product was flat.

In spite of the commission's more downbeat forecast for the UK economy than the eurozone, the euro had by last night fallen back below 80p. At around 79.87p, it was more than 0.3p weaker than its close against the pound on Tuesday night.

The European Commission forecast yesterday that UK gross domestic product would fall by 0.2% in each of the third and fourth quarters. Technical recession is generally defined as two consecutive quarters of contraction.

Justifying its UK forecasts, the commission cited tight conditions for household borrowing, deteriorating housing and labour markets, and stagnation of real disposable incomes caused by high inflation. It also asserted the UK was more exposed to ongoing credit and equity market troubles.

For 2008 as a whole, the European Commission yesterday slashed its forecast of UK growth from the 1.7% it projected in April to just 1.1%. The UK grew by about 3% last year and its average long-term rate of growth is about 2.5% to 2.75% per annum.

However, while the OECD believes the UK will be the only one of the Group of Seven leading industrialised nations to fall into recession this year with falls in output of about 0.1% in each of the third and fourth quarters, the European Commission expects Germany will also encounter recession. It forecasts that 0.5% contraction in Germany in the second quarter will be followed by a further 0.2% fall in output in the three months to September.

Elsewhere in the European Union, but outside the G7, the commission expects Spain to fall into recession with respective declines in output of 0.1% and 0.3% in the third and fourth quarters.

The commission's 1.1% forecast for UK growth in 2008 as a whole is behind its respective predictions of 1.4% and 1.3% expansion in the European Union and eurozone. It had, in the spring, been forecasting growth of 1.7% in the eurozone and European Union-wide expansion of 2.0%.

Across both the eurozone and the EU as a whole, the commission is predicting economic output will be flat between the second and third quarters, before growing by just 0.1% in the final three months of this year.

David Kern, economic adviser to the British Chambers of Commerce, took issue with implication of the European Commission forecasts that the UK is in worse shape than eurozone economies.

He said: "We agree with the EU Commission that the UK is now in technical recession, and small UK GDP declines can be expected in the third and fourth quarters of 2008.

"But the UK has performed better than the main eurozone economies so far this year, and it is important to refute misleading impressions that our economy is worse off than the eurozone. If correct policy measures are adopted, we can prevent a major UK recession and we can still outperform our main European competitors, both this year and in 2009."

Commenting on the UK outlook, the European Commission said: "GDP growth in the second half of 2008 is expected to turn negative, with output contracting slightly in each quarter, driven by a continued weakening of domestic demand. Private consumption is likely to fall somewhat due to the combined impact of tighter credit conditions for household borrowing, weakening housing and labour markets, and inflation-induced stagnation in real disposable income."

It added: "Investment levels are expected to weaken further on account of still-tight credit conditions, an uncertain business environment, both domestic and external, as well as a negative housing market outlook. While the lower exchange rate is likely to support export growth in the medium term, in the short-term weakness in overseas markets will constrain output gains from this source."

The commission attributed the pound's depreciation in recent months, against currencies including the euro, partly to "emerging perceptions of the UK's sharply-weaker performance, given its greater exposure to the ongoing weakness in both credit and equity markets".

Annual UK consumer prices index inflation will come in at 3.6% for 2008 as a whole, the European Commission forecast, up from its spring estimate of 2.8%.

However, the commission added that "inflationary pressures are expected to be progressively mitigated by demand weakness". Annual UK CPI inflation jumped to 4.4% in July - more than double the Bank of England's 2% target.