UK economic outlook 'worsening'

Families are facing pressure on their disposable incomes

The outlook for the UK economy has got worse and the Bank of England must act to stop a major downturn, the British Chambers of Commerce (BCC) has warned.

The current economic slowdown will be more prolonged than previously thought, it argued, with consumer spending remaining weak until the end of 2009.

The Bank of England must be more "pro-active" in countering the threat to growth and business prospects.

The Bank left interest rates on hold at 5% last week.

'Dangers'

The widely-expected decision was criticised by some business groups which have called on the Bank to be more aggressive in cutting borrowing to assist consumer confidence.

The Bank has trimmed rates three times since December but the 0.4% economic growth in the first quarter was the lowest quarterly figure since the start of 2005.

Although the Bank remains concerned about growing inflationary pressures, most economists believe it will reduce borrowing by at least a half point by the end of the year.

The longer the Monetary Policy Committee waits now, the bigger the danger that the situation would deteriorate David Kern, BCC economic adviser

But the BCC warned against undue caution due to the worsening economic prospects.

"The longer the Monetary Policy Committee waits now, the bigger the danger that the situation would deteriorate and the policy choices would become more difficult and more unpleasant later in the year," said David Kern, the BCC's economic adviser.

"Waiting unduly before easing further would pose unacceptable threats to growth."

In its latest quarterly economic update, the BCC downgraded its forecasts for annual growth next year from 2% to 1.6%.

This, it said, was due to the "sharp deceleration" in consumer spending expected over the next 18 months as a result of rising household bills and falling house prices.

While stressing that a recession remained "unlikely", the BCC said the next 18 months would be "difficult and risky" and called on the government to offer extra support for small firms.