CBI cuts UK growth forecasts while warning of EU uncertainty

The business lobby group now expects 2.4% growth this year and 2.5% next year, down from February's forecast of 2.7% and 2.6% respectively. 

It blamed weaker-than-expected growth in the first quarter for the downgrade.

The 0.3% expansion marked the UK's weakest growth since the end of 2012.

The CBI described this as a "temporary blip" and said it now believed the UK economy was on a "firm footing".

But it said a "still sluggish eurozone", renewed uncertainty over Greece's economic future, and the in/out referendum on the UK's EU membership - which Prime Minister David Cameron has said will take place by the end of 2017 - were all potential threats to the UK's recovery.

"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," the CBI said in its forecast.

It also warned that uncertainty over the EU referendum's outcome meant investment spending could be delayed.

The CBI said continued weak productivity - which, as measured by output per hour worked, has been exceptionally weak since 2008 - also posed a threat to the UK economy.

"While we are seeing a strong domestic picture, cracking the productivity conundrum would really help cement the recovery," said CBI director of economics Rain Newton-Smith.

The CBI forecast came as accountancy firm and services group BDO said UK manufacturing firms' confidence had seen its sharpest drop in two years.

It said its monthly manufacturing optimism index, based on the UK's main business surveys, had seen a four-point drop - its biggest since March 2013.

BDO said a combination of the strong pound and a weak eurozone economy had hit exports, while low oil and gas prices had curbed investment in the sector and slowed orders for manufacturing firms.