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The Bank of England must cut interest rates within the next two to three months to avoid a real downturn, the British Chambers of Commerce (BCC) argues.

BCC economic adviser David Kern comments that most analysts expect rates to be kept on hold but says that this would further weaken the ability of banks to lend to struggling businesses.

He remarks that this is particularly dangerous because the UK economy is probably already in a state of technical recession.

'A major recession can still be avoided, but the [Bank] cannot wait too long before acting. To reduce the threat of a severe economic downturn, the MPC must start cutting interest rates in October or November,' Kern advises.

The Bank is unwilling to cut rates immediately because of the threat of inflation which is expected to reach five per cent in September - more than twice the government's two per cent target.

Last week, American economist David Blanchflower warned that two million people may be unemployed and house prices could have fallen by 30 per cent if the Bank does not cut rates immediately.

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