The UK’s economic recovery is steady but fragile, the British Chambers of Commerce (BCC) has said in a report. It added that while firms were feeling more confident, problems were evident.

According to the business group, the UK rate of growth fell to 0.6% in the period between April and June, down from 0.7% in the previous three months.

Citing weaker European Union demand and increasing red tape, the BCC warned that the UK recovery could be snuffed out by higher interest rates or taxes.

‘Regulatory burden’

“The pace of the recovery is coming off a bit,” said the BCC’s economic adviser David Kern. “It does point to a slowdown but not to a collapse.”

“We’re pleased to see some improvement in confidence but we’re saying it needs to be nurtured,” he added. “The Bank of England should not give way to the clamour for higher interest rates - that would be damaging.”

The Bank of England has left its main interest rate unchanged for the past 11 months at 4.5%.

However, in recent weeks there have been concerns that the rate of inflation may prompt the Bank to change its stance.

Mr Kern said it would be a mistake to hike borrowing costs as most of the price growth had come from imported energy costs that now seemed to have stabilised.

At the same time, unemployment has increased and figures have shown that wage growth was below key levels, he explained.

He said that two of the main concerns facing businesses today were an increase in UK taxes and the “onerous and ongoing regulatory burden”.

Keeping the economy ticking over “depends on how the government reacts”, Mr Kern said.

Trading outlook

The BCC’s survey showed that service sector firms’ foreign sales and orders “worsened markedly” during the quarter.

However, helping offset that decline were domestic sales and orders which hit an 18 month-high, the BCC said.

Howard Archer of Capital Economics said: “The somewhat mixed BCC survey reinforces the case for interest rates to remain on hold for some time to come.”

Mr Archer said that findings raised doubts over whether foreign trade would be strong enough to keep the economy going forward.