The British Chambers of Commerce has cut its forecast for Britain's economic growth this year to two per cent.
It says in its latest quarterly economic survey that a slowdown in household consumption combined with weak manufacturing will drag down activity overall.
The Chambers' last forecast in May was looking for growth of 2.4 per cent for 2005.
"The slowdown in UK GDP growth is mainly being driven by sharply lower growth in household consumption, as the cooling housing market and the higher personal debt burden dampen spending," BCC economic adviser David Kern said.
The BCC also lowered its forecast for growth in 2006 to 2.2 per cent from 2.3 per cent in the May report.
The BCC's predictions come after the Bank of England cut interest rates to 4.5 per cent to shore up sagging consumer spending and business investment.
The Bank has also toned down its outlook for growth this year and said household spending posed a significant downside risk but was bullish on economic prospects further out.
The CBI, speaking generally for larger companies while most members of chambers of commerce are smaller businesses, will publish its latest 2005 growth forecast this morningalong with its monthly industrial trends survey for August.
Official revised numbers for economic growth due on Friday, are expected to show the economy expanded by more than first thought in the second quarter of this year.
Independent analysts expect the second estimate for April/June will be revised up to an annual growth rate of 1.8 per cent from 1.7 per cent reported last month.
The BCC's revised 2005 growth forecast is materially lower than the three to 3.5 per cent predicted by Chancellor Gordon Brown in his March Budget, a projection on which his tax and borrowing plans are based.
Yesterday the Chambers said that while tax rises in 2006 can probably be avoided, they were likely to be needed in 2007 or 2008, if Mr Brown is to go on meeting his self-imposed "golden rule" - whereby the Government pays for all its running costs out of taxes and over the economic cycle and borrows only to invest.
Mr Kern is forecasting household consumption growth this year of 1.9 per cent compared with May's prediction of 2.1 per cent.
Meanwhile, manufacturing output growth is forecast at 0.4 per cent in 2005 and 1.5 per cent next year, both unchanged from the May forecast.
But Mr Kern went on to warn: "There is a distinct risk of an even worse manufacturing performance."
Despite the emerging picture of lower growth, the BCC yesterday said it not expect any major changes in interest rates for the rest of the year, though a cut from the current 4.5 per cent to 4.25 per cent is likely in early 2006.
The large budget deficit and the risks to sterling from the trade deficit will make it more difficult for the Bank's monetary policy committee to cut base rate further in the next 12 months.
And with the budgetary position " stretched", tax increases of between £10-15 billion will be needed in 2007 or 2008, Mr Kern went on to predict.
