In a call for action to avoid stagnation, the BCC, which represents more than 100,000 UK firms, has predicted that UK GDP will drop by 0.4% in 2012 and that growth will slow from 1.9% to 1.2% in 2013.

Continuing problems within the Eurozone and rises in food and oil prices have caused the industry body to call for the Government to introduce measures to support small business borrowing.

It also backed Chancellor George Osborne’s austerity measures and his cuts to benefits, the state pension and civil services, deeming them vital to retain the confidence of financial markets.

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.

“We need an economic action programme so that Britain can excel and make its way in the world.”

The BCC report also forecast that public sector job losses would push unemployment up to a peak of 8.5% a year from now.

The CBI which speaks for 240,000 UK businesses also slashed its growth forecast, predicting GDP growth in 2012 to be -0.3%, below its previous forecast in May of +0.6%.

John Cridland, CBI director-general, said: “At present I believe the economy is flat rather than falling but, nonetheless, momentum seems to have weakened and the latest official figures put the UK in recession for the second quarter of this year.

“Underlying growth will return to the economy later in the year than previously expected, with a somewhat better outlook next year.

“However, euro area uncertainty, and the looming “fiscal cliff” of spending cuts and tax increases in the US will only add to the sense of unease during the coming months.”