The National Institute of Economic and Social Research (NIESR) estimated that output declined by 0.2 per cent in the three months ending in July.

Official figures showed GDP fell by 0.7 in the three months to the end of June.

However, NIESR has said that its latest data is likely to be distorted by the additional bank holiday and the moving of the late May bank holiday for the Diamond Jubilee celebrations.

The organisation said it could take two years for the economy to get back to previous levels.

The report said: “These estimates suggest the UK’s large negative output gap is widening.

“We do not expect output to pass its peak in early 2008 until 2014.”

The research follows a raft of gloomy economic figures, which included poor industrial output numbers on Tuesday morning.

Industrial output fell in June as companies took a hit from the two days of public holiday set aside for the Queen’s Diamond Jubilee celebrations, according to the Office for National Statistics.

It industrial production figures, which measure output from the UK’s factories and mines, showed a drop of 4.3% compared to June 2011.

However, this wasn’t as bad as the 5% analysts had been predicting.

The month-on-month figure was also better than forecast with a drop of 2.5%, compared with the expected figure of 3.4%.

Manufacturing fell by 4.3% in June 2012 compared to the previous year, but again, this was better than the 5.3% drop pencilled in by analysts.