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Recent interest rate rises have slowed down the UK economy, according to the British Chambers of Commerce (BCC).

Its quarterly survey of 4,700 businesses reveals that both the service and manufacturing sectors have been hit by the Bank of England's recent decisions to raise the base rate in an effort to halt quickening inflation.

Hikes in August and November last year were capped off by an additional quarter-point increase in January, sending rates to 5.25 per cent after 12 months of stability.

These have resulted in businesses setting lower prices in order to accommodate their perceived diminished pricing power, the BCC says.

Consumer price inflation is expected to fall to around the chancellor's target of two per cent by the end of the year but economists are divided as to whether an additional rate hike is needed to help it on its way.

"We do acknowledge that inflation is still a potential danger, but there are powerful arguments suggesting that demand pressures will slow, and inflation will decelerate, without additional tightening," BCC economic adviser David Kern commented.

"With average earnings growth below retail price index inflation, UK disposable incomes are being squeezed and spending will inevitably decelerate. Moreover, the recent rise in sterling is exerting a dampening effect on economic activity and inflation."

Mr Kern acknowledged that his survey's claims contradicted widely-held perceptions of "growing business pricing power".

But he insisted that another rates hike would constitute "damaging monetary overkill" and prove detrimental to British businesses.