BCC Downgrades UK Economic Forecast

The Government must undertake "bold enterprise-friendly" action to save the economy, the BCC urged as it slashed its growth forecast for the UK.

The business group said it expects the economy to grow by just 0.1% this year, downgrading its previous prediction of 0.6%.

"Ongoing problems in Europe will persist for some considerable time and cause difficulties for UK businesses," the BCC said in its quarterly economic forecast.

The report follows confirmation that the UK has fallen into technical recession after a 0.3% decline in growth in both the final quarter of 2011 and the first quarter of this year.

Meanwhile, the bad news continued as Britain's manufacturing sector shrank at its fastest pace in three years in May as orders plummeted.

The headline activity index fell to 45.9 in May, below the 50-mark which separates expansion from contraction. The drop from 50.2 in April was the second-steepest fall in the survey's 20-year history.

However the BCC said economic prospects should improve gradually with gross domestic product (GDP) expected to rise by 1.9% in 2013.

"Net exports and business investment will be important drivers of UK economic growth in the next two to three years. But there will also be a modest improvement in consumer spending," it added.

Households will begin to increase their spending after a 0.7% reduction in 2011, the group said, with growth ramping up from 0.7% this year, to 1.7% in 2013, and 2.1% in 2014.

Business investment will also improve but unemployment will increase from 2.625 million to 2.9 million in the third quarter of 2013, partly due to public sector spending cuts, many of which are yet to even be implemented.

The predictions came as the BCC called on the Government to bring in growth-creating measures such as increased infrastructure spending.

Director general John Longworth said: "We need growth and we need it now. If the Government works together with the private sector to create the right environment over the long term, we'll be able to prove once and for all that bold businesses can propel us forward out of stagnation and firmly on the road to recovery."