Industry leaders sounded a fresh note of caution over recovery hopes by reducing growth forecasts for both this year and next.

In its quarterly economic forecast, the CBI blamed weak global economic conditions and predicted UK growth would average 2.2 per cent this year - a downward revision of 0.2 per cent.

Next year, growth will average 2.4 per cent, trimming previous forecasts by 0.3 per cent.

The employers' organisation said Government spending was boosting the economy, with public investment growing 27.3 per cent, the highest rate for 20 years.

The CBI said household consumption was also supporting the economy but would only grow by 2.4 per cent this year compared to 3.8 per cent in last year.

CBI chief economist Ian McCafferty said: "The world economy is weak with the hoped for recovery failing to materialise.

"Domestically, there are signs consumers are less willing to spend and the forthcoming National Insurance increase will only make the situation more difficult.

"The UK economy remains in better shape than many, but it is balanced by public sector strength and private sector weakness."

He called on the Chancellor to accept high levels of borrowing rather than push up taxes.