A body which represents businesses in Britain has warned that the British economy will enter a recession in coming months.

In its latest quarterly economic forecast, the British Chambers of Commerce (BCC) said the economy was facing a "technical" recession of two or more quarters of declining output over the next six or nine months.

But on a more positive note the organisation stated that a major recession similar to the downturn seen in early 1990s was unlikely.

The BCC's economic adviser David Kern said: "Our quarterly economic forecast highlights a significant worsening in UK economic prospects. There is now a distinct possibility of technical recession.

"The level of UK unemployment is likely to increase to nearly 300,000 over the next few years, reaching almost two million. An increase above two million cannot be ruled out."

The main drivers of the UK slowdown will be a "very sharp" deceleration in consumer spending growth as households tighten their belts amid soaring bills and falling house prices, the BCC said. Another contributory factor will be much lower growth in UK investment spending thanks to rock-bottom business confidence.

Bank of England Governor Mervyn King has also forecast that the British economy could suffer two quarters of negative growth as it went through a "difficult and painful adjustment".

Inflation hit a record 4.4% in July, and Mr King warned it could spend the rest of this year around the 5% mark before it falls away through 2009.

Mr Kern said the UK urgently needed an interest rate cut to stimulate the economy. The Bank of England's Monetary Policy Committee (MPC) left interest rates unchanged for the third month in a row in July, holding them at 5%.

Mr Kern said: "Our view is that the threats to growth are more serious and more immediate than the risks of higher inflation."

The BCC, which represents both small and medium-sized businesses in Britain, said it was predicting GDP growth to fall to 1.3% this year and 1.1% in 2009.

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