The British Chambers of Commerce (BCC) has downgraded its UK GDP growth forecast for 2015 from 2.7% to 2.3% in response to weaker than expected growth at the start of the year.
However, the BCC says the slowdown is temporary and the prospects over the medium term remain steady, with GDP growth predicted to be 2.6% in 2016 and 2017.
John Longworth, BCC director general, said: "It is always disappointing when we have to downgrade our growth forecast but the unexpectedly low figures from the ONS on Q1 2015 make it unavoidable. While this slowdown will serve as a warning about the strength of our economic recovery, we believe the UK will secure steady growth in the years to come."
The BCC forecast suggests that total earnings growth will be 2.4% in 2015, 4% in 2016 and 4.5% in 2017. It says unemployment, including youth unemployment, will fall in each of the next three years. However, by 2018, youth unemployment will still be high at 13%, almost three times the overall unemployment rate.
Of greatest concern, says Longworth, is the trade deficit. The BCC predicts that the real net trade deficit will rise in 2015, from 2.7% to 2.9%.
"The trade deficit is an economic time-bomb waiting to go off," said Longworth. "The growth we see is built on consumer spend and this has been a systemic weakness for years. Despite good intentions, we are heading the wrong way. We have to confront it head-on and that means getting more of our businesses exporting their goods and services overseas."
Projections for exporting show increases of 3.6% in 2015, 2% in 2016 and 2.2% in 2017. For real imports the BCC predicts rises of 4.1% in 2015, 1.5% in 2016 and 1.7% in 2017.
David Kern, BCC chief economist, said: “In spite of the downgrading of our 2015 growth forecast, UK prospects remain solid overall. The slowdown this year is likely to be temporary. International comparisons also show the UK is in a good position. In 2014, the UK grew faster than other G7 economies. Our new forecast suggests that we will remain near the top of the G7 league table over the next three years."