Britain’s biggest businesses are warning the economy will remain in the slow lane, as uncertainty from Brexit puts their investment plans on ice despite progress with Brussels.

The interjection by British Chambers of Commerce comes before a meeting of Bank of England’s rate-setting committee this week. The BCC have told ministers they now need to finalise a transitional deal to smooth the Brexit process before firms will increase spending on staff and production capacity, despite the breakthrough last week that moved talks with the rest of the EU on to trade.

Quick Guide What are Brexit options now? Four scenarios Show Staying in the single market and customs union The UK could sign up to all the EU’s rules and regulations, staying in the single market – which provides free movement of goods, services and people – and the customs union, in which EU members agree tariffs on external states. Freedom of movement would continue and the UK would keep paying into the Brussels pot. We would continue to have unfettered access to EU trade, but the pledge to “take back control” of laws, borders and money would not have been fulfilled. This is an unlikely outcome and one that may be possible only by reversing the Brexit decision, after a second referendum or election. The Norway model Britain could follow Norway, which is in the single market, is subject to freedom of movement rules and pays a fee to Brussels – but is outside the customs union. That combination would tie Britain to EU regulations but allow it to sign trade deals of its own. A “Norway-minus” deal is more likely. That would see the UK leave the single market and customs union and end free movement of people. But Britain would align its rules and regulations with Brussels, hoping this would allow a greater degree of market access. The UK would still be subject to EU rules. The Canada deal A comprehensive trade deal like the one handed to Canada would help British traders, as it would lower or eliminate tariffs. But there would be little on offer for the UK services industry. It is a bad outcome for financial services. Such a deal would leave Britain free to diverge from EU rules and regulations but that in turn would lead to border checks and the rise of other “non-tariff barriers” to trade. It would leave Britain free to forge new trade deals with other nations. Many in Brussels see this as a likely outcome, based on Theresa May’s direction so far. No deal Britain leaves with no trade deal, meaning that all trade is governed by World Trade Organization rules. Tariffs would be high, queues at the border long and the Irish border issue severe. In the short term, British aircraft might be unable to fly to some European destinations. The UK would quickly need to establish bilateral agreements to deal with the consequences, but the country would be free to take whatever future direction it wishes. It may need to deregulate to attract international business – a very different future and a lot of disruption.

The lobby group said tepid investment levels, weak wage growth and high inflation would lead Threadneedle Street to keep interest rates on hold until the final months of 2019, far later than most expectations. The BCC downgraded its growth outlook for this year from 1.6% to 1.5%, while forecasting a slowdown to 1.1% from 1.2% in 2018.

The Bank’s monetary policy committee is meeting for the first time since raising the cost of borrowing in November – the first rise in interest rates in a decade. The MPC is expected to keep rates on hold at 0.5% on Thursday, although economists will be looking for any clues for when the next rise will come at a time of slowing economic growth.

Adam Marshall, BCC director general, said: “Despite last week’s deal, Brexit uncertainty still lingers over business communities, and is undermining many firms’ investment decisions and confidence.

“Despite pockets of resilience and success, and strong results for some UK firms, the bigger picture is one of slow economic growth amid uncertain trading conditions.”

Business investment in technology and in training for employees is key for driving up economic output as well as productivity, which has been sluggish since the financial crisis – a major cause of low rates of wage growth for UK workers. The government has launched an industrial strategy as well as more funding for skills and research at the budget last month in response.

The MPC decision, due at midday on Thursday, will follow fresh inflation, jobs and wages figures on Tuesday and Wednesday, which are expected to confirm that the squeeze on British households’ spending power is yet to dissipate. The weak pound since the Brexit vote last year is still pushing up the cost of imported goods, while wages are failing to grow above the rate of inflation, despite the lowest levels of unemployment since the mid-1970s.

The consumer price index measure of inflation stood at 3% in October, confounding an expectation for prices to rise further. City economists reckon the CPI will hold steady in November when the figures are released on Tuesday, helping the Bank’s governor, Mark Carney, to avoid writing a letter to the chancellor – which he must do when CPI is more than a percentage point above or below Threadneedle Street’s 2% target.

Analysts at Goldman Sachs say progress in the Brexit talks last week is unlikely to encourage the Bank to move any faster towards higher interest rates, given that the MPC’s economic outlook assumes a transitional period. The investment bank reckons there will be three rate rises by mid-2020, with the next one towards the end of next year.

Some economists expect the MPC will next vote for a rate increase as early as May, while others see the next rise coming later in the year. The Bank has a balancing act to strike between keeping inflation in check to protect consumers from the rising cost of living, and also providing enough stimulus to encourage economic growth.

The central bank’s actions will come in a week when the European Central Bank is also expected to keep interest rates on hold for the eurozone and the Federal Reserve is expected to raise the cost of borrowing as the economy of the US powers ahead at twice the pace of the UK’s. The Fed rate is expected to raise from 1.25% to 1.5%, while the ECB is expected to keep its main rate at 0%.

The Fed meeting will be a landmark one – it is the final appearance for Janet Yellen as chair before she hands over to Jerome Powell, who was picked by Donald Trump to replace her.