Business group has doubts over future

British Chambers of Commerce (BCC) predicted Gross Domestic Product growth of 1.3 per cent for 2010, higher than its forecast of one per cent in March, although it stressed the UK had not yet shaken off the threat of a double-dip recession.

It is more cautious about growth in 2011 and has lowered its forecast to two per cent from 2.1 per cent because of obstacles to a sustained medium-term recovery.

BCC chief economist David Kern said: "After two consecutive quarters of positive UK economic growth, the risk of an immediate relapse is less severe. However, the recovery is still weak, and it would be unwise to disregard the threat of a double-dip recession. The crisis in the eurozone and turmoil in the global financial markets threaten to dampen the UK's growth prospects."

Unlike the Organisation for Economic Co-operation and Development, which has called on the Bank of England to sharply increase interest rates next year to mitigate the risks of higher inflation, the BCC has called for rates to be kept low for a prolonged period.

It expects the Bank's monetary policy committee to lift rates from the current low of 0.5 per cent to one per cent by the end of the year, rising to 2.5 per cent by the end of 2011.

The BCC also called on the government to support wealth-creating businesses by avoiding new business taxes.

BCC director-general David Frost added: "We do expect VAT to rise, but it should only be increased in conjunction with a full reversal of the 2011 employer National Insurance hike.

"If any increase in national insurance contributions is allowed to go ahead, it w ill act as a handbrake on job creation."

BCC said unemployment will increase in the next 12 months.