The British Chamber of Commerce (BCC) has downgraded its prediction for UK GDP growth in 2011, 2012 and 2013.
The BCC also predicts that the Monetary Policy Committee (MPC) will increase the quantitative easing programme from current levels of £275 billion to £325 billion.
In September, the BCC predicted the UK would achieve GDP growth of 1.1% in 2011. This figure has now been revised down to 0.9%.
The severity of the fallout from the sovereign debt crisis has lead the BCC to predict minimal growth until the third quarter of 2012, after which “gradual improvement” is expected.
This improvement will still be considered weak in a historical context until the second half of 2013.
A prediction of 2.1% growth in 2012 has been revised down to 0.8% while 1.8% is now expected in 2013, down from 2.5%.
John Longworth, director general of the BCC, said: “The challenges facing the UK economy have grown in recent months. Uncertainty surrounding the eurozone will delay a significant upturn in growth until late in 2012.
“We expect inflation to fall sharply, which is positive news for businesses and consumers, but we will be faced with rising unemployment for some time to come.”
The BCC has revised up its unemployment estimate. UK unemployment is now expected to increase from 8.3% in the third quarter of 2011 to 8.7% by the fourth quarter of 2012.
Public sector borrowing is expected to reach £123.9 billion in 2011/12, while inflation will decline to 2% in 2013.
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