BoE urged to act to avoid downturn

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The economic downturn will be more prolonged than first thought and businesses face a "difficult and risky climate" over the next year as the credit crunch continues to take its toll, said the BCC.

Its quarterly economic forecast urged the Bank and Government to be more proactive in taking measures to shore-up the UK's flagging economy.

The Bank's Monetary Policy Committee last week voted to keep interest rates on hold at 5%, but the BCC said the longer it waited to cut rates again, the greater the damage on the economy.

David Kern, economic adviser to the BCC, said: "Waiting unduly before easing further would pose unacceptable threats to growth. The longer the MPC 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."

Plunging consumer confidence is set to be the biggest driver in dragging down economic growth, said the BCC, which is forecasting GDP growth to plunge from 3% in 2007 to 1.7% in 2008 and even 1% at the turn of the year - a marked shift on its earlier predictions of 2% GDP in 2009.

The report comes ahead of the Bank of England's quarterly inflation forecast, which will reportedly this week paint a grim picture of the outlook for the UK economy.

It is expected to forecast rising inflation and sharply weakening economic growth, with analysts warning that the Consumer Prices Index may even hit close to 4% as oil prices continue to reach new heights, last week hitting a record 126 US dollars a barrel.