British economic growth is likely to be less impressive than previously thought, according to the British Chambers of Commerce, who today published their revised growth projections for this year and the next.

GDP growth in 2011 is set to be 1.3 per cent, down from the 1.4 per cent predicted three months ago. 2012 has also had its growth forecast cut from 2.3 per cent to 2.2. per cent.

Slightly more positively that BCC said it expected unemployment to peak at 2.6 million in the middle of next year, a lower figure than the 2.65 million previously predicted.

The BCC added that the Bank of England is likely to raise interest rates in August of this year and that rates will reach 2.75 per cent by the end of 2012.

Annual CPI inflation is also predicted to be more severe this year, reaching 4.5 per cent rather than 4.2 per cent and in 2012 where it is predicted to reach 2.7 per cent rather than 2.3 per cent.

David Frost, Director General of the British Chambers of Commerce, said, "This forecast suggests that the economy is still facing difficult challenges in the years ahead. Although growth will be slow, the government is right to persevere with its plans to cut the deficit.

"But this must be balanced with policies that allow business to drive the recovery. The Budget was a positive start, but the government has more to do if the private sector is to create new jobs, invest and export and contribute to a lasting economic recovery in the UK. New regulatory burdens, business taxes and measures that damage initiative, enterprise, and innovation must be avoided or scrapped.

"British business is willing and able to drive the recovery, but it can only do this if the government backs its words with deeds. Without a credible strategy aimed at driving growth, there is a danger that the recovery will fizzle out."

David Kern, Chief Economist at the British Chambers of Commerce, added, "Although we have reduced our growth expectations, our forecast conveys a positive message overall. A new recession is unlikely, and while growth will initially be slow, it will stay in positive territory. The recovery will gradually gather momentum from the fourth quarter of 2011 onwards, with growth strengthening further in 2013.

"It is difficult to assess growth in the second quarter because of the volatility of the construction sector, and the uncertain impact of the Royal Wedding. But with the number of days worked in April lower than usual, we expect that the net effect will be to slightly reduce GDP growth. We expect low quarterly growth of 0.3% in Q2 and Q3 of 2011, followed by an increase to 0.6% at the end of 2011 and during 2012.

"The pace of the UK recovery will be slow over the next 18-24 months for a number of reasons: tough fiscal austerity, which will dampen domestic demand; higher than expected inflation, which will reinforce the squeeze on disposable incomes; and worrying global trends, that will pose challenges to a resurgence in world trade. Nevertheless, if the correct policies are adopted, we expect growth to strengthen gradually. Our forecast assumes that the main drivers of UK growth over the next two years will be net exports and, to a lesser degree, business investment.

"We are expecting the Bank of England rate to start increasing in August 2011. Although we would prefer to see interest rates held until the fourth quarter, we believe British businesses will be able to absorb small increases. But the MPC must act with great caution and must not be too aggressive in its tightening."

Unemployment GDP Bank of England