CBI cuts its growth forecast

THE CBI today slashed its forecast for economic growth this year, blaming an 'anaemic performance' in the first half and a slow recovery in global trade.

It now expects the economy to expand by 1.8% rather than the 2.1% it pencilled in three months ago, bringing its forecast into line with the City consensus. For 2004, growth is seen picking up to 2.4%.

The downgrade came as it emerged that retail sales fell by 0.4% in July following June's 1.9% jump, boosted by hot weather. Only household goods posted an increase.

Experts said the underlying picture suggested spending remains strong. Alan Castle at Lehman Brothers said: 'A lot of this consumption is being fuelled by a build-up of debt, which cannot last.'

CBI chief economist Ian McCafferty, who expects interest rates will be little changed until the end of the year, said: 'We were expecting the route to the recovery to be long and difficult, but even so the first six months of the year have been disappointing.

'It is clearly going to be a long haul and this means growth will remain lacklustre for some time yet.' McCafferty said levels of investment are 'worryingly weak'.

Official figures today showed investment by manufacturers slumped by 10.1% in the second quarter. But there was a glimmer of hope, with order books in July the fattest for nine months, the CBI said.

The euro slid to its lowest against the dollar for four months today following confirmation that Germany was stuck firmly in recession in the first half of the year. It fell as low as $1.0977 amid fresh fears about the outlook for the European economy.