"Domestic activity in the dominant services sector weakened for the second successive quarter, with consumer-facing firms particularly downbeat amid subdued household spending levels and tightening cashflow," said Suren Thiru, Head of Economics at the BCC.
Businesses, particularly in the manufacturing sector, also reported an increase in price pressures, partly blamed on the weakening of the pound amid Brexit uncertainty.
"The marked increase in cost pressures for businesses in the quarter suggests that inflation will be higher over the near term, with the continued weakness in sterling maintaining the upward trend on the cost of imported raw materials," added Thiru.
Four-fifths of manufacturers reported difficulties in recruiting staff - the joint highest level since the survey began in 1989. Britain is currently enjoying record levels of employment, but the business lobby group warned that reduced immigration following Brexit could leave businesses with serious labour shortages.
"Given the magnitude of the recruitment difficulties faced by firms clear across the UK, business concerns about the government's recent blueprint for future immigration rules must be taken seriously - and companies must be able to access skills at all levels without heavy costs or bureaucracy."