Britain remains on course to dodge a recession this year but growth will “flatline” as stubborn inflation and a tight jobs market continue to drag on the economy, according to the latest forecast from the British Chambers of Commerce (BCC).

The lobby group has upgraded its growth prediction for 2023 to 0.3 per cent but warned that economic activity will “remain weak throughout the year”.

Inflation remains the primary concern for firms, the BCC found, with the group forecasting that the consumer price index (CPI) rate will come in at five per cent by the final three months of the year.

Inflation dipped into single figures for the first time in nearly a year in May but topped predictions after a jump in core inflation, which excludes volatile food and energy prices.

Despite stubborn inflation levels, the BCC nudged up its forecast due to “higher levels of household spending and recent increases in overall business investment” and said the economy would “flatline” for the year.

“Evidence from recent BCC business surveys also showed a rebounding of business confidence at the start of 2023,” analysts at the group said. “However, despite greater political stability, stubbornly high inflation rates and labour market shortages continue to weigh on growth.”

The BCC said it expects three quarters of 0.1 per cent growth and one quarter of no growth – leading to the overall figure of 0.3 per cent for the year.

The prediction is in line with the Bank of England’s forecast but is a more optimistic projection than the Office for Budget Responsibility’s.

Policymakers at the Bank will also hike rates to 4.75 per cent in the second half of 2023 to tame stubborn inflation, the BCC has has predicted, higher than its previous prediction of 4.25 per.

Rates are expected to fall to four per cent in 2024, and 3.75 per cent in 2025.

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UK economy will ‘flatline’ as inflation and tough jobs market drag on growth