The worst of the recession is over, but talk of recovery is premature and unemployment continues to head over three million, a leading business group predicted today.

The British Chambers of Commerce said there had been “welcome progress” in recent months, especially among confidence levels, which had been badly hit and weakened by the economic downturn.

But the chambers, which was the first business organisation to warn of a recession a year ago, said sales, orders and employment levels in manufacturing and service firms remained weak.

Unemployment was still expected to reach 3.2 million, around 10 per cent of the workforce, by mid 2010, with fewer than half of manufacturers and service sector firms trying to recruit workers in recent months.

The Government was warned that without more measures to limit the impact of the recession, the economy could suddenly “drop off.”

The report, based on a study of 5,600 companies in the quarter to June, showed that “serious downward pressures” remained across all sectors of industry in every region of the country.

“Talk of recovery is premature. Further corrective measures are needed to support the economy. The marked improvement in confidence, albeit from exceptionally low levels, is welcome.

“Confidence levels are still historically weak and recent improvements can only be sustained if the economy continues to stabilise and the recession ends,” said the report.

David Frost, director general of the BCC said the research sent a “strong message” to the Government that it was vital to nurture business confidence.

“The Government needs to think long and hard about its policies on taxation and red tape, which threaten to stifle growth and employment.”

Mr Frost warned that the planned increase in National Insurance contributions from 2011 was a “tax on jobs” and be scrapped immediately.

He voiced business concern about the level of public debt and said firms which had cut costs and jobs in response to the recession could not understand why politicians were unable to face up to “difficult decision” in the public sector.