Businesses are in danger of reining in spending if official figures released tomorrow show the UK has lost its battle to avoid a recession, it has been claimed.
Economists believe the Office for National Statistics will say the UK's economy scraped 0.1% growth in the first quarter of 2012 but there are fears of another decline following the 0.3% contraction at the end of 2011.
A second fall in a row would mean the UK is officially back in recession, which the British Chambers of Commerce (BCC) said could have a damaging impact on confidence, the Press Association reported.
Recent industry surveys indicate that business confidence has grown in recent months despite mixed official data but that a fall in sentiment would come as a blow to the economy at a time when companies are being encouraged to invest to stimulate growth.
BCC director general John Longworth said: "A negative first-quarter figure, however small, will mean the economy has entered a technical recession and this could affect the sentiment among businesses."
Regardless of whether the UK is officially back in recession in the ONS's first estimate for GDP tomorrow, the economy still faces a grim outlook. Stubborn inflation is set to further hurt people's living standards and unemployment is due to surge higher amid the Government's austerity measures.
However, the economy is nothing like as weak as in the previous slump in 2008-09 when it suffered more than a year of decline.
Mr Longworth added: "We still think a recession is unlikely, and believe that business surveys give a more reliable picture of the underlying situation.
"The debate around a technical recession deflects attention away from the real issues facing the economy, which relate to a prolonged period of unduly low growth and the urgent need for stronger efforts to help businesses drive recovery."
Meanwhile, an official return to recession could also trigger a stockmarket sell-off, with markets becoming increasingly volatile over fears that the eurozone crisis is escalating.
David Miller, partner at Cheviot Asset Management, said: "Investors are looking to the GDP figures coming up this week, as their fear is that should numbers be poor, we could be in for a repeat of July and August last year when the markets sold off."
Hopes that a revival in consumer spending can lead the economy to growth were lifted last week when official figures showed a 1.8% increase in retail sales between February and March. It was driven by panic buying for petrol and as warmer weather in March boosted sales of summer fashion ranges.
Nida Ali, economic adviser to the Ernst & Young ITEM Club, said: "These figures bode well for next week's GDP release and provide further evidence that we will probably avoid a technical recession after all."
The Bank of England admitted in minutes of its April interest rates meeting that a recession was still possible but that it was encouraged by a wide range of surveys and data for the powerhouse services sector, which point towards underlying growth in the first half of the year.
A mixed picture of the economy has emerged in 2012, casting doubt over the likely GDP figure for the first quarter.
While industry surveys have pointed to strong growth for the manufacturing and construction sectors in 2012, official figures paint a different figure.
ONS data showed manufacturers saw steep declines in February, while construction suffered hefty falls in January and disappointing growth the following month.
Respected think-tank the OECD recently said it expects the UK`s economy to have declined 0.1% in the first quarter.
Economists agree that the UK's growth this year will be feeble and unreliable.
There are fears that the extra bank holiday for the Queen's Diamond Jubilee will act as a drag on the second quarter, while the impact of the Olympics is difficult to judge.
Meanwhile, doubts are growing that inflation will fall back to its 2% target amid high oil and food prices which triggered an unexpected rise in the cost of living last month, and will also act as a drag on the recovery.
Suggested For You
SUBSCRIBE AND FOLLOW
Get top stories and blog posts emailed to me each day. Newsletters may offer personalized content or advertisements.Learn more