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BCC economic adviser David Kern said: "The outlook is grim and we believe that the correction period is likely to be longer and nastier than anticipated."
David Frost, director general of the BCC, told Bloomberg Television: "The worries about a threat from a slowdown are far greater than the threat of inflation."
The UK's economic woes are being fuelled by record oil prices, plummeting property prices and a lack of credit.
A BCC index based on a survey of more than 4,700 services firms dropped from 17 to minus two, the lowest level since 1992.
Meanwhile, a separate index tracking factories fell from 12 to minus three.
The BCC is a non-political, non-profit making organisation which acts as the "voice of UK business".
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