UK firms face the unpleasant combination of slow economic growth, higher inflation and taxes, and creeping interest rates, economics experts have warned.
In its quarterly business forecast, the Centre of Economics and Business Research (CEBR) argues that today's benign business environment will begin to peel away in 2006.
The group expects this deterioration to be "modest", but forecasts a slowdown in economic growth from 3.1% in 2004 to 2.8% in 2005 and just above 2% after 2006.
It says interest rates will peak at 5.25%, up from 4.75% currently, and that inflation will top out on the Consumer Price Index measure at 2% in 2007 - the Bank of England's official target rate.
It sees a period of "consolidation" following the general election - no matter which party wins - because consumers and the Treasury have less spending power and because the world economy is set to cool in coming years.
CEBR economist Andrij Halushka said: "The normally gung-ho British consumer is likely to be rather subdued. A high street slowdown has already started, and we expect consumption to grow at a modest 2.4% this year, down from 3.1% in 2004.
"Much of the impetus in the economy is currently coming from the business sector, which has repaired its balance sheets and is eyeing expansion opportunities. The service sector is expected to lift its output by 3.0% in 2005, while private sector capital investment rises by 5.3%."
Mark Pragnell, managing director of CEBR, argues that tax increases are certain in the next Parliament.
He said: "If the consensus is right and the coming election results in a Labour majority, the UK is likely to see curbs on public spending growth and tax increases of several billion pounds a year, but otherwise a continuation of recent economic policy."
