The U.K. economy will probably avoid a recession this year and the government needs to do more to increase lending to help a “weak” recovery, the British Chambers of Commerce said.

Gross domestic product probably rose 0.3 percent in the first quarter after a 0.3 percent drop in the last three months of 2011, the London-based group said in an e-mailed report today. It forecast full-year growth of 0.6 percent, less than the 0.8 percent predicted by the government’s fiscal watchdog.

Manufacturing grew at the fastest pace in 10 months in March, according to a report yesterday. While Chancellor of the Exchequer George Osborne announced further cuts in the rate of corporation tax last month to encourage businesses to locate in Britain and spur growth, he’s under pressure to do more to help companies get access to credit.

“The U.K. economy is still facing huge challenges and the recovery is much too slow,” BCC Director General John Longworth said. “It has the potential to recover, but to achieve that the government has to set businesses free to grow.”

The BCC said U.K. inflation is likely to slow less quickly than expected this year due to an increase in oil and food. While consumer-price growth eased to 3.4 percent in February, that’s still above the Bank of England’s 2 percent target. BCC Chief Economist David Kern said the group is also “still concerned that the unresolved problems in the euro zone may trigger new upheavals later this year.”

‘Welcome’ Improvement

In a quarterly survey published today, the BCC said a gauge of domestic orders at manufacturers rose to 6 in the three months through March from minus 13 in the previous quarter. For services, the domestic orders index increased to 7 from minus 9. On export orders, the measures for both industries jumped to the highest in a year.

It’s a “welcome but modest improvement in the economic situation,” Kern said, adding that economic growth probably won’t return to a “more normal” pace until next year. He also said the Bank of England must do more to ensure its bond-buying program “encourages increased lending to viable SMEs.”

“There must be a greater focus on policies to support growth that will enable businesses to create jobs, invest and export,” Longworth said. “As the public sector’s share of economic activity shrinks over the next few years, forceful measures are needed.”

The Bank of England will maintain its bond-purchase target at 325 billion pounds ($521 billion) on April 5, according to all 39 economists in a Bloomberg News survey. It will also keep its benchmark interest rate at a record-low 0.5 percent, according to a separate survey.