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British Chambers warns on interest rise

BRITISH Chambers of Commerce has raised its forecasts of UK growth for 2014 and 2015, but warned of the dangers of over-reliance on consumer spending.

Publishing its latest forecasts today, British Cham-bers highlights its view that rises in benchmark UK interest rates will have a significant dampening effect on some households and the economy as a whole.

And it urges the Bank of England to keep base rates low for as long as possible.

It also flags the weakness of UK export growth.

British Chambers has increased its forecast of growth in UK gross domestic product this year from 3.1 per cent to 3.2 per cent. And it has raised its prediction of growth in 2015 from 2.7 per cent to 2.8 per cent, while holding its estimate of expansion in 2016 at 2.5 per cent.

Director general John Longworth described the expected slowdown in 2015 and 2016 as a "warning sign" for the UK, and flagged an over-reliance on consumer spending as a growth driver.

David Kern, chief economist at British Chambers, said: "We predict strong growth of 0.8 per cent per quarter in the second half of this year. But as interest rates start to rise in 2015, indebted households with mortgages will face increased financial pressures, and much weaker household consumption will act as a drag on growth."

He added: "Greater efforts to boost exports and investment, and avoiding premature interest rate increases, will ensure that the recovery is sustainable and that the pace of growth can strengthen in the future."

British Chambers forecasts the first rise in UK base rates will be a quarter-point increase to 0.75 per cent, and will occur in the first quarter of 2015.

It says further modest increases in official rates can then be expected, in small steps of 0.25 percentage points, with base rates reaching 1.25 per cent in the fourth quarter of 2015 and 2.25 per cent in the final three months of 2016.

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