The British Chambers of Commerce has cut its growth forecasts for the UK economy for both 2011 and 2012.
In its latest quarterly economic forecast, the BCC predicts the economy will grow by 1.1% in 2011, revised down from 1.3%, and forecasts growth of 2.1% for 2012, down from a previous estimate of 2.2%.
The BCC says growth will be modest over the coming quarters, estimated at 0.3% in Q3 2011, 0.5% in Q4 2011 and 0.6% in Q1 2012.
It says unemployment will peak in Q4 2012 at 2.62 million, revised up from a previous estimated peak of 2.6 million in Q2 2012.
The BCC says that lower growth prospects, both in the UK and in global markets, mean interest rates will need to stay at very low levels for longer than previously expected.
It predicts the base rate will first rise in August 2012, reaching 1% in Q4 2012 and 2.25% in Q4 2013.
David Frost, director-general of the BCC, says: “The challenges faced by the UK economy are more difficult than first thought at the beginning of the year. Growth will be slow, inflation will remain high, and the number of those out of work will increase.
“Despite this, there is no need for doom and gloom. We expect prospects to improve over the medium-term, and believe that the UK has the potential to recover and thrive. But this will depend on creating the right conditions for businesses to grow.”
David Kern, chief economist at the BCC, says the economy faces serious challenges and although economic growth will remain positive, it will not return to pre-recession levels until 2013.
He says: “In addition to maintaining low interest rates, if weak economic growth continues we expect the MPC to consider increasing the quantitative easing programme from £200bn to £250bn.
“There may also be a case for action to stimulate stronger bank lending. Regulators could consider temporarily relaxing bank capital requirements, or other measures, which could promote the availability of credit to viable businesses that want to invest.”