The BCC said it believed that the Bank of England will raise interest rates in May The UK economy will grow by less than expected in 2011 but growth in 2012 will be better than predicted, the British Chambers of Commerce forecasts.
The group downgraded its forecast for UK GDP growth in 2011 to 1.4% from a December forecast of 1.9%.
The BCC said the downward revision was due to an unexpected fall in fourth quarter GDP.
It also increased its unemployment forecast for early 2012 to 2.65 million, up from 2.6 million.
However the BCC, which represents hundreds of small businesses, raised its prediction for 2012 growth to 2.3% from 2.1% in December.
The forecast comes a day after Prime Minister David Cameron gave a speech at the Conservative Party spring conference in Cardiff highlighting the importance of the private sector to the UK’s economy.
He pledged to stand behind entrepreneurs and stand against what he called the “enemies of enterprise”
Interest rates
BCC director general David Frost said: “British businesses will welcome the Government’s desire to boost enterprise and reduce red tape but these words must be backed by action.”
“While we support efforts to reduce the UK’s deficit, these measures alone will not deliver a sustainable recovery,” he added.
The BCC said it believed that the Bank of England will raise interest rates in May from the current historical low of 0.5%.
But the group warned that such a move could be premature at this stage of the economic cycle.
Separately the financial services firm PriceWaterhouseCoopers has issued a report suggesting that the Monetary Policy Committee of the Bank of England should not raise interest rates before the economic recovery is secure, despite concerns over inflation.
“The MPC faces a difficult task in balancing upside risks to inflation against downside risks to growth,” said John Hawksworth, PWC’s chief economist.
“Our own judgement, however, is that the MPC should not be increasing rates until it is clear that the recovery is secure. We do not believe that it needs to increase interest rates immediately to meet its target of a 2% CPI inflation rate in two years time,” Mr Hawksworth added.
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