ManufacturingBusiness leaders have urged the Government to show some "backbone" and drive economic growth after they slashed their forecasts for this year and next.

The British Chambers of Commerce (BCC), which represents more than 100,000 UK firms, now believes there will be no growth this year, as output will shrink by 0.4% before a rise of 1.2% next year, compared with its 1.9% forecast in June.


It wants immediate action to lift the economy from "a vicious cycle of stagnation" by giving firms bigger tax breaks for spending on plant and machinery, as well as by lowering National Insurance contributions to encourage job creation and providing more support for housebuilders.

The BCC had already called for a long-term plan, such as boosting infrastructure spending and creating a state-backed business bank, but now believes a short-term stimulus package is also needed.

And it called on the Government to stick to its deficit reduction measures by slashing spending - particularly welfare and pensions - to reallocate funds towards boosting investment.

It argued that abandoning the deficit reduction plan would risk losing the UK's cherished AAA credit rating, but so would continued above-target borrowing figures caused by weak growth.

BCC director general John Longworth said: "Politicians need to get some political backbone and show leadership. We are a great country, as we demonstrated during the Olympics - we have the talent and the energy but we need the political will to focus relentlessly on economic growth."

The CBI painted a similarly depressing picture after it said GDP will fall 0.3% in 2012, below its May forecast of a 0.6% rise. It now thinks the economy will expand by 1.2% in 2013, compared with its previous estimate of 2%.

CBI head of economic analysis Anna Leach said the economy is "likely to remain quite listless through the remaining months of 2012".

A Treasury spokesman said: "The Government is doing everything it can to get the economy moving - the Funding for Lending scheme will help boost lending across the whole economy, and the Government is using the UK's market.