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Growth forecast up but challenges ahead

BRITISH Chambers of Commerce has raised its forecast of UK growth this year from 2.8 per cent to 3.1 per cent but warned that the country has much to do to ensure long-term growth prospects.

The business group is worried about the UK's over-reliance on consumer spending as a driver of growth.

In its latest forecasts published today, British Chambers also raises its prediction of UK gross domestic product (GDP) growth in 2015 from 2.5 per cent to 2.7 per cent.

It maintains its forecast of growth in 2016 at 2.5 per cent.

Bank of England ­Governor Mark Carney last summer highlighted the fact that the UK had endured its weakest recovery on record. And, in spite of recent growth, UK economic output in the first quarter of this year was 0.6 per cent adrift of its peak in the opening three months of 2008, ahead of the Great Recession.

Contemplating the outlook, British Chambers said: "The expected slowdown in growth in the next two years is a warning sign that the UK is overly reliant on consumer spending as a driver of growth."

John Longworth, director general of British Chambers, said: "The task at hand is to ensure that 2014 is not 's good as it gets for the UK economy. Everything possible must be done to avoid slower growth in future. We need to invest, innovate, export and build. While we forecast business investment to grow strongly over the next three years, that investment is rising from an extremely low base."

And Mr Longworth called for UK base rates, which have been at 0.5% since March 2009, to be kept low for as long as possible.

He said: "To sustain investment momentum into the future, the Government and the Bank of England need to give businesses the confidence they need to invest. We urge the Bank of England to keep official interest [rates] low for as long as possible, and ensure that future rate rises are gradual and modest."

David Kern, chief economist at British Chambers, said: "Though our GDP ­forecasts have been upgraded, we are predicting a marked slowdown in the pace of growth, from 3.1 per cent in 2014 to 2.5 per cent in 2016.

"This will mainly reflect a deceleration in household consumption growth, and falling public spending as a share of GDP. Together, these factors will more than offset increased contributions to GDP from investment and net trade.

"As official interest rates start rising, probably in early 2015, indebted households with mortgages will come under increased financial pressure, and the weakening in household consumption will be a key factor in lowering GDP growth."

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