Business group warns on consumer debt and downgrades UK growth forecasts

Britain's economy is too reliant on consumer spending fuelled by borrowing, a business group warned as it downgraded growth forecasts for 2015 and the next two years.

The British Chambers of Commerce (BCC) said there needs to be a "fundamental shift" in the economy to balance growth away from the dominant services sector and cautioned there was "still a long way to go" in the UK recovery.

It cut forecasts for gross domestic product (GDP) growth from 2.6% to 2.4% in 2015, and from 2.7% to 2.5% in both 2016 and 2017.

The BCC blamed a weaker-than-expected trade performance and recent disappointing pull-back in activity in the manufacturing sector.

Official figures on Tuesday revealed that manufacturing output dropped by 0.4% month-on-month in October - worse than forecast and a sharp reversal of the 0.9% rise in September.

The Office for National Statistics (ONS) said activity in the sector was also down on an annual basis, falling by 0.1%.

The BCC is forecasting the manufacturing sector to contract by 0.2% in 2015 as "falling global prospects" hit the sector.

It had earlier predicted the sector to grow this year.

The group is pencilling in a rise in interest rates from 0.5% to 0.75% in the third quarter of 2016, although it stressed that uncertainty over the global economy could see the Bank of England delay the move.

John Longworth, director general of the BCC, said Britain needs to invest to help firms export to narrow the trade gap, while more also needs to be spent on infrastructure to reduce reliance on services and help boost manufacturing.

He said: "We cannot rely so heavily on consumer spending to fuel our economy, especially when driven by increased borrowing.

"We have been down this path before, and know that it leaves individuals and businesses exposed when interest rates do eventually rise.

"The UK still needs to see a fundamental shift in its economic model if we are to remain relevant and prosperous in a changing world economy," he added.