Bold action from the Government is needed to deliver growth or the economy will "bump along the bottom" for longer than expected, a leading business group has warned.
The British Chambers of Commerce (BCC), which represents more than 100,000 UK businesses, slashed its forecast for economic growth in 2012 from 0.6% to 0.1%.
The downgrade came as the BCC urged the government to introduce growth-creating measures such as increased infrastructure spending.
BCC director general John Longworth said.
"We need growth and we need it now. If the government works together with the private sector to create the right environment over the long term, we'll be able to prove once and for all that bold businesses can propel us forward out of stagnation and firmly on the road to recovery."
Its lower forecast follows official figures which show the UK economy shrank by 0.3% in the first three months of the year, returning the economy to recession.
But the group, whose members employ five million people in total, upgraded its growth forecast for 2013 from 1.8% to 1.9% and said it expects economic activity to pick-up from July.
Growth between April and June will be flat or slightly negative, prolonging the recession, but should improve from the third quarter, the BCC said.
Economic problems in Europe will persist for a considerable time and cause difficulties for UK businesses, the BCC warned.
Meanwhile, household spending will see modest improvement, from minus 1.2% in 2011 to positive growth of 0.7% in 2012, 1.7% in 2013 and of 2.1% in 2014, according to the group.
Business investment should improve from 1.2% in 2011 to 4.3% in 2012 but unemployment will increase from 2.625 million (8.2% of the workforce) to 2.9 million (9%) in the third quarter of 2013. This is, in part, down to public sector spending cuts, many of which are yet to even be implemented, the BCC said.
David Kern, BCC chief economist, said: "Though growth might be low, the economy will expand in spite of the difficulties continuing to face the eurozone. However if there is a disorderly euro breakdown, then growth is likely to be lower.
"Alongside investment in infrastructure, policies that support job creation and enterprise, such as cutting national insurance contributions or raising capital allowances, are most likely to benefit the economy."
Public sector borrowing for 2012/13 will be £98 billion, the BCC forecasts, which is £6 billion above the latest estimate from tax and spending watchdog the Office for Budget Responsibility.
Weak growth prospects mean interest rates will be held at record lows of 0.5% until late 2013, the BCC said, reaching 0.75% at the end of 2013.