The British Chambers of Commerce has downgraded its UK growth forecast for 2015, following weaker than expected growth at the start of the year.
The BCC's forecast for UK GDP was revised downwards from 2.7 per cent to 2.3 per cent.
However, the business group said that, despite the downgrade, it expected the slowdown to be temporary - with GDP growth of 2.6 per cent in 2016 and 2017.
The services sector is forecast to have stronger than average growth, of 2.8 per cent for the next three years.
Meanwhile, growth in construction output is likely to fall by 0.7 per cent in 2015, before increasing by 2.2 per cent and 2.1 per cent in 2016 and 2017 respectively.
The BCC's economic forecast also includes predicted growth for total earnings of 2.4 per cent in 2015, 4.0 per cent in 2016 and 4.5 per cent in 2017.
It said that it expected UK unemployment to fall in each of the next three years. However, it warned that youth unemployment would remain high - at 13 per cent in 2018, almost three times the overall unemployment rate.
It forecasts that the UK's interest rate will increase in a year, with a rise of 0.75 per cent in the second quarter of 2016. It said that rates will then be subject to small, incremental rises reaching 1.75 per cent in Q4 2017.
John Longworth, Director General of the British Chambers of Commerce, said:
It is always disappointing when we have to downgrade our growth forecast but the unexpectedly low figures from the ONS on Q1 2015 make it unavoidable. While this slowdown will serve as a warning about the strength of our economic recovery, we believe the UK will secure steady growth in the years to come.
David Kern, Chief Economist at the BCC, said:
In spite of the downgrading of our 2015 growth forecast, UK prospects remain solid overall. The slowdown this year is likely to be temporary. Earlier falls in oil, food and other commodity prices continue to support UK growth, and Britain’s flexible and vibrant labour market is a major source of strength for our economy.
International comparisons also show the UK is in a good position. In 2014, the UK grew faster than other G7 economies. Our new forecast suggests that we will remain near the top of the G7 league table over the next three years.
But the UK recovery continues to face obstacles. Globally, confidence is too dependent on abnormally low interest rates and huge quantitative easing programmes. In spite of better eurozone prospects, a Greek default could trigger a new crisis, and, of course, the two largest global economies - the US and China - are experiencing slowdowns.
Domestically, UK growth is relying unduly on consumer spending. Progress towards rebalancing the economy towards exports has been inadequate and the real trade deficit continues to get worse. This is troubling, especially at a time when we are carrying such a heavy current account deficit.
The UK’s ability to generate tax revenues has worsened, due to big falls in oil and gas output and lower profits of UK banks. We will have to adjust to this harsher and more difficult reality.
It is therefore vital that we focus on policies that support higher productivity and a strong recovery in exports, while persevering with the necessary and difficult job of cutting the fiscal deficit.
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