The UK economy is looking grim and is expected to contract by 0.7% this year, according to the Organisation for Economic Co-operation and Development.
The Paris-based think tank OECD added that the global economy is slowing, with key European countries entering a recession that is likely to spread worldwide.
However the economic outlook for the UK has been slashed more than any other country in the G7 bloc, prompting fears that Britain could enter another recession, reported Sky News.
The outlook is bleak in comparison to the forecast made in May, when it predicted growth of 0.5%. The UK is predicted to be the worst performing G7 nation apart from Italy in the year.
The authors of the report permitted one caveat, admitting the forecast may not have taken into account the effect that the Olympics and the Jubilee weekend had on the economy.
The OECD predicts the UK economy will not return to growth until the final quarter of the year, when it will expand marginally.
Germany's economic outlook was also downgraded with economic growth of 0.8% expected, down from 1.2%, which may slow growth around the eurozone.
Authors of the OECD called on the European Central Bank to take action against the weak growth outlook predicting that the sluggish economy will push unemployment beyond the already high levels.
“Resolving the euro area’s banking, fiscal and competitiveness problems is still the key to recovery,” Chief Economist Pier Carlo Padoan said.
The G7 economies are expected to grow at an annualised rate of just 0.3% in the third quarter of 2012 and 1.1% in the fourth.
George Osborne and David Cameron are expected to reveal a number of measures to boost growth in Britain. On Thursday, plans to relax planning restrictions were published with hopes that this will encourage expansion of homes and businesses.
The prime minister's official spokesman said: "Those figures demonstrate what we know which is that these are very difficult times in the world economy.
"The OECD highlights the euro area crisis as the single biggest global economic risk and in addition to that problem that UK is dealing with some deep-rooted issues at home.
"All the evidence shows that recovery from financial crisis takes a long time and there is no doubt we still have an impaired banking and financial system in this country.
"Clearly it is going to be difficult for us in this country while there are continuing problems in the eurozone."