The local business organisation said the UK faces two "very difficult years" and warned that the Bank of England's Monetary Policy Committee (MPC) must not delay in cutting interest rates to fight off recession.

BCC director general David Frost said:  "While a marked slowdown in activity is likely over the next 18 months, even if interest rates are cut when inflation peaks, the correct policy decisions are still needed to ward off the threats of a serious and prolonged recession.

"The longer the MPC waits before cutting rates, the bigger the danger that the economic situation would deteriorate."

The BCC's August 2008 Economic Forecast highlighted a "significant worsening in UK economic prospects" and stated that there is now a "distinct possibility of technical recession".

The survey claimed that UK unemployment is likely to increase by nearly 300,000 to almost 2m and is not ruling out levels breaking the 2m mark.

The BCC expects GDP growth over the next three quarters to be slightly negative or zero, after which it predicts a slow recovery.

"The period of weak, below-trend, growth is likely to be prolonged, lasting until the final months of 2009 or early in 2010," the report said.

The BCC argued that the threats to business growth are more immediate than the risks of high inflation and said the UK economy urgently needs an interest rate cut to counter the threat of recession.

David Kern, economic advisor to the BCC, said: "Our central scenario envisages that the UK bank rate would be cut to 4.75% in quarter four 2008, followed by an additional cut to 4.5% in quarter one 2009."