CBI cuts growth forecast

Growth warning: aerial view of city of London

Growth warning: aerial view of city of London - Credit: PA

The CBI has cut its UK growth forecast for 2015 after a weak start to the year and warned that uncertainty around the EU referendum could pose further risks to the outlook for the economy.

It expects gross domestic product (GDP) to expand by 2.4% for the year, down from an earlier forecast of 2.7%. Prospects for next year have also been cut, with an upturn of 2.5% pencilled in, down from 2.6%.

The business organisation said the downgrades were largely due to weaker than expected official GDP data for the first quarter, which saw growth of just 0.3% - the weakest since the end of 2012.

It described this as a 'temporary blip' and predicts a strong rebound to 0.8% in the second quarter.

But it said the in-out referendum on Europe promised by the Conservative Government - as well as the potential for a 'messy' end to the Greek crisis - were potential threats to the recovery.

CBI director-general John Cridland said growth had built up 'a good head of steam', as businesses were seeing a 'pretty solid recovery' with consumer spending underpinned by low inflation and interest rates and rising incomes.

But he added: 'Risks remain in the form of economic instability in Greece and a sluggish eurozone, and clearly the EU referendum is a hot topic in Britain's boardrooms.

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'Businesses now have certainty that the referendum is happening, but not the outcome. However, most of our members are clear they want to remain in a reformed EU and will get behind an ambitious reform agenda.'

The CBI forecast said: 'Risks to UK growth are tilted to the downside.

'A messy resolution of the Greek crisis could spark financial market and exchange rate volatility which could spill over into the real economy.

'And uncertainty ahead of the EU referendum raises the risk around our forecast of reduced sentiment and a delay in investment spending.'

The forecast also warned that weaker-than-expected growth in productivity - which is judged by measures such as output per hour - continued to pose a threat to lasting economic growth.

Rain Newton-Smith, CBI director of economics, said: 'The UK is among the lead runners in the pack of G7 economies.

'While we are seeing a strong domestic picture, cracking the productivity conundrum would really help cement the recovery.'

The forecast cut comes after the Bank of England last month slashed its outlook for 2015 from 2.9% to 2.5%.