The CBI has cut its UK economic growth forecast for 2011 from 1.8 per cent to 1.7 per cent.
It says growth of 0.6 per cent is expected over each of the three remaining quarters.
The CBI has also downgraded its growth forecast for 2012 from 2.3 per cent to 2.2 per cent.
It says that modest interest rate rises are likely from Q3, 2011 through to mid-2012, followed by a slightly faster monetary stimulus withdrawal over the second half of 2012. This would take the interest rate up to 2.5 per cent by Q4, 2012.
It also expects inflation to be higher throughout this year and into early 2012 than previously forecast, largely due to the effect of higher commodity prices, in particular oil.
However, the CBI says as the impact of the VAT rise falls away, inflation is expected to fall back closer to the Bank of England’s 2 per cent target rate next year.
CBI chief economic adviser Ian McCafferty says: “The recovery continues to be choppy and lacking in vigour. Expansion in certain sectors is being offset by weaker performance in others. What remains striking is how little we expect the pace of growth to accelerate in 2012, and that it will be far less robust than we would normally expect in the second and third years of a recovery.”