Economy 'to bounce back by 2010'

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The UK economy should bounce back next year but the risk of a relapse remains high, a business group has warned.

The British Chambers of Commerce expects the economy to grow 1.1% in 2010, almost double its previous forecast of 0.6% made in June.

It says unemployment will peak at just above 3 million, fewer than the 3.2 million forecast previously.

However, it said that sustaining the recovery would prove challenging given the UK's debt burden.

"The upturn in the economy has probably already started and we could see a relatively strong bounce-back in the next few quarters," said chief economist David Kern.

"But sustaining the recovery will be very challenging and the risks of relapse are high," he added.

The group expects the UK economy to shrink by 4.3% this year, more than its June forecast of 3.8%.

This was because the decline in economic activity in the first six months of the year was much worse than it expected.

It said that the current recession was much worse than the recession of the early 1990s but is not quite as severe as the recession in the early 1980s.

The BCC said that overly indebted consumers, high unemployment, a fragile banking sector and the need to slash government borrowing could dampen the pace of recovery.

'Perilous state'

BCC's director general David Frost said that reform of the public sector should be central to any plan to cut spending.

"The painful but necessary reduction in government debt and borrowing, which will have to implemented soon, should entail curbing public spending in all areas, except for vital business infrastructure expenditure," said Mr Frost.

"Given the perilous state of our public finances, we cannot afford to ring-fence other spending categories, no matter how desirable it may be."

Shadow chancellor George Osborne said that it was not acceptable that the government planned to go ahead with a £30bn increase in public spending in the next financial year.

"Someone has to say enough is enough, this country has got to live within its means," Mr Osborne told the BBC.

"If we don't get on top of the debt... it is not just you and I that will pay for this with higher taxes... it is future generations that will be burdened with this debt."

Mr Osborne added that if the UK did not exit recession this year it would be an "absolute disaster" given that France, Germany and Japan have already begun to recover.

"It is striking that much of the world has left recession but we haven't," he said.