Britain will avoid a recession this year and the Bank of England will not need to inject any more stimulus, but the recovery will be weak and the government should step up its efforts to boost growth, the British Chambers of Commerce said on Monday.
Britain's largest business lobby group revised down its forecast for growth this year to 0.6 percent from 0.8 percent. It said output was likely to be hit by an extra public holiday for the Queen's Diamond Jubilee celebrations in the first half before the recovery gathers pace later in 2012.
Britain's economy shrank by 0.2 percent in the final three months of 2011, but a raft of more upbeat economic news this year suggests growth has resumed, allaying fears of a return to recession.
Nothing is certain, but I believe that the economy has returned to growth, albeit modest growth in this quarter, said BCC chief economist David Kern.
Although I say in the forecast that the second quarter will be weak, I don't think it will be negative, he added.
Concerns about the fragile recovery encouraged the Bank to inject a further 50 billion pounds of stimulus into the economy last month, but the BCC raised doubts about the effectiveness of quantitative easing and said it did not expect an expansion of the programme.
Instead, the lobby group urged chancellor George Osborne to recycle cash from lower-than-expected borrowing this fiscal year to stimulate growth by investing in a raft of measures from scrapping a planned rise in local taxes on firms, to easing the regulatory burden on businesses.
Kern said he expected government borrowing to undershoot its 127 billion pound target in 2011/12 by some 8 billion pounds, giving Osborne leeway to help businesses invest and create jobs without harming his debt-cutting credentials.
A fiscal stimulus totalling some 4 billion pounds would be consistent with maintaining strong UK market credibility and would not endanger our AAA credit rating, Kern said. The critical priority is to sustain growth while cutting the deficit.
(Reporting by Fiona Shaikh)