UK families to be squeezed further as it is revealed inflation will dwarf average payrise.
The squeeze on cash-strapped households is set to continue this year after businesses said they plan to award average pay rises of just 1.1pc.
With business employers only expecting salary increases to rise slightly from last year's 0.9pc hikes, the report by ICAEW/Grant Thornton warned that "with the effects of inflation it will feel like a pay freeze for the majority of employees".
The report also found that the private sector will not create jobs quickly enough to stop unemployment rising, although small businesses will be hiring faster than larger companies.
It urged Chancellor George Osborne to use next month's Budget to boost business as it predicted the UK will slip back into recession in coming months.
Companies' confidence levels remained depressed at a reading of minus 9.3 over the three months to the end of January, having failed to recover significantly following its collapse in the previous three months. It said the measure is a reliable indicator of economic growth, suggesting that GDP will fall by 0.2pc in the first quarter of 2012 the same amount it contracted in the previous quarter, pushing the UK economy back into an official recession.
The survey found that businesses are reining in on investment amid the gloom and job creation plans remain "subdued".
ICAEW chief executive Michael Izza said: "This survey shows that businesses are responding to concerns about the economic outlook by cutting back on investment in equipment and people.
"This is at a time when Government desperately needs businesses to be growing.
"At the moment, it is hard to see where this growth will come from and the Chancellor needs to use the forthcoming budget to give businesses reasons to be more confident about the future and unlock potential investments."
Shadow business secretary Chuka Umunna said: "Businesses up and down the country are struggling because ministers are cutting spending and raising taxes too far and too fast, choking off growth before the effects of the eurozone crisis were brought to bear on the UK economy."