Every time anyone makes a forecast for the UK economy it seems more gloomy than the previous forecast. But, up to last week, all of the major economic forecasters had stopped shy of predicting recession. Not any longer. This morning saw the gloomiest forecast yet for the UK economy this year and next.

“British business is facing two very difficult years,” began the latest economic report from the British Chambers of Commerce (BCC). It continued: “There is now a distinct possibility of technical recession.”

The BCC report went on to predict that UK unemployment is likely to increase by some 250,000–300,000 over the next two to three years, and that the “golden rule”, which prescribes that the government will only borrow for investment over the economic cycle, is very likely to be breached.

The BCC remedy: Interest rates need to be cut fast. “The longer the MPC waits before cutting rates, the bigger the danger that the situation will deteriorate, and the policy choices will become more difficult and unpleasant,” said the BCC.

It gave a warning, however: “Government temptation to raise business taxes because it is running out of money, must be forcefully resisted.”

David Kern, Economic Adviser to the BCC said: “Over the next two or three quarters, we expect UK GDP growth to be slightly negative or zero. Thereafter, we expect a shallow recovery, but the period of weak, below-trend, growth is likely to be prolonged, lasting until the final months of 2009 or early in 2010.”

“Our view,” he added, “is that the threats to growth are more serious and more immediate than the risks of higher inflation. The UK economy urgently needs an interest rate cut to counter threats of recession.

“Our central scenario envisages that the UK Bank Rate would be cut to 4.75 per cent in quarter four 2008, followed by an additional cut to 4.50 per cent in quarter one 2009.”

It has been said here many times in recent months that, looking forward, deflation rather than inflation may prove to be a bigger challenge for the UK. And cutting interest rates may well be the right thing to do.

However, UK consumers need to reduce their debt exposure. Earlier this year data from the National Institute of Economic and Social Research revealed that the UK had the highest debt to income ratio of the G7. In the US, the wealth to income ratio is 2.52, compared to 2.18 in the UK. The UK’s debt to income ratio is 1.23, compared to 1.16 in the US.

It is important that the UK’s consumers are not encouraged to spend the UK out of economic crisis. Cuts in interest rates at a time of a shortage of credit will be no bad thing – after all, lower interest rates should at least reduce the cost of repaying debt.

But, lower interest rates are not the panacea for all our ills. The UK’ s best prospect for sustainable growth in the longer-term lies with an export-led recovery. And the recent falls in the pound provide the perhaps the single biggest ray of hope for a UK recovery that we have yet seen.

It is funny, though, isn’t it, how these economic forecasts lag so much behind what has been blindingly obvious for so long?

The media has been accused of talking the UK into recession – the reality is that because the media is not a slave to data, it has been able to apply common sense to the economic situation, and common sense has been warning of the very things the BCC is now talking about for months, if not longer.