The FSB forecast suggests the UK government must invest in helping provide the right skills for employees to help growth. It said: "The Government could invest in a significant re-skilling of the UK labour force, including revisiting recent higher education reforms which are likely to undermine this effort.
"It could engage in an effective industrial policy, which could achieve the re-balancing of the economy that both coalition parties advocate, by targeting investment in those sectors where independent business advice might indicate a potential competitive advantage for the UK," it said.
The FSB said: "The only real limitation to these initiatives, is the imagination of those in charge of the national economy.
The news comes after December's Labour Market Statistics from the Office for National Statistics (ONS) revealed there were 29.60 million people in employment aged 16 and over in the three months to October 2012, up 40,000 from May to July this year.
The FSB was surprised at the good news for the UK economy in terms of jobs throughout 2012 but believes the figures should be treated with 'a little caution'. It said: "The figures mask the fact that much of this seeming improvement has occurred due to a large increase in the self-employed and those working part-time but wanting a full-time job."
It added: "The numbers of people in employment is disguising under-employment, an issue less important when the alternative might be unemployment and the rusting of skills, but it becomes more significant when the economy starts to grow if firms try to hold on to this hoarded labour, as this will lower the productivity of the economy as a whole."
The FSB has predicted that weak growth and fragile recovery will continue in 2013, it said: "GDP growth has flatlined in 2012, with the economy experiencing a double dip recession.
"This sluggishness is a feature of financial crisis, as those firms and consumers who over-borrowed in good economic times start to pay off some of their debt, while the financial sector, having got their fingers burned by being too incautious, use available capital to strengthen their own balance sheets rather than lend to small businesses."
