Britain’s leading employers’ organisation, the Confederation of British Industry, has warned the UK economy will shift down a gear this year and risks remaining in the slow lane because of Brexit.

Cutting its growth forecasts for the year, owing to heavy snowfall in the opening months of 2018 and lingering fears over Brexit, the CBI said it expected the growth rate for the British economy to slow to 1.4%, from 1.8% last year.

The rate of GDP growth is then forecast to fall further still, to 1.3% next year, as the UK leaves the EU.



The downgrade comes as business groups become increasingly worried about the lack of progress being made by ministers in talks with Brussels, amid divisions between senior cabinet members. Business leaders fear there will be little progress made before parliament breaks for its summer recess next month.



Rain Newton-Smith, chief economist at the CBI, said companies needed to know how they would access the single market and customs union after Brexit. The summer recess is seen as an important cut-off point because ministers will need to go to Brussels with a clear plan for crunch talks in the autumn.



“There’s a real danger” no progress would be made before the recess, she said. “The transition deal in March was a huge step forward but a lot of businesses are now saying they still need to know what’s happening after 2020 … We just haven’t had enough clarity on the customs arrangements and access to the single market.”



Official figures show investment by businesses fell by 0.2% in the first quarter of 2018, which is thought to have been triggered by the lack of clarity over Brexit, making companies wary about spending on major projects.

Although the CBI forecast a return to growth in spending in the months to come, fuelled by investment in new technologies such as artificial intelligence, it warned uncertainty would continue to bite hard.



Alpesh Paleja, principal economist at the CBI, said: “While many companies are turning their attention to AI, automation and streamlining operations to stay competitive, there is only so much that they can do when Brexit uncertainty continues to loom large.”



While the outcome of the referendum has triggered a damaging slowdown in consumer spending and business investment, the employers’ body warned there would be little to cheer struggling retailers.

Dozens of high street chains have announced plans to cut jobs and close stores across the country, including Marks & Spencer and House of Fraser.



Hard-pressed Britons reined in their spending amid weak wage growth and high levels of inflation, triggered by the sudden drop in the value of the pound immediately after the Brexit vote.

But although the CBI said the worst of the squeeze was over, it expected spending growth to remain subdued.



The business body forecast the contribution of consumer spending to GDP growth would fall by a third in 2018, and by a further 40% next year.



Despite the sluggish growth rate, the CBI said the economy was probably still strong enough to withstand a rate rise from the Bank of England. Pointing to the return of real wage growth earlier this year, it forecast a rate rise from as early as August, with another two hikes for the cost of borrowing next year to reach 1.25%.