Britain’s leading corporate lobby group has insisted the government should press ahead with its austerity drive, despite warnings that another round of deep cuts could dent the recovery.

The CBI on Monday joins other forecasters in cutting its outlook for the UK economy after a sharp slowdown at the start of the year. But it believes the weakness will prove to be short-lived and is no reason for the newly elected Conservative government to reconsider plans for another round of cuts.

CBI director-general John Cridland said the business group’s member companies still ranked deficit reduction as a top priority.

“The overriding duty of a government, to make sure the public finances are in order, has been in poll position on the racing grid for CBI members for the last five years, and is today. They consider that is the most important job for the government to do and it’s a job that is only half done,” said Cridland.

“So we don’t want the government to ease off on austerity. We want the government to continue to tackle the deficit in the public finances but to do so in an intelligent way.”

His comments came as the CBI sought to paint a bright outlook for the UK of “solid, steady and sustainable” growth that will put it among the best performing of the G7 advanced economies. But it was forced to cut its forecasts after official figures signalled the UK’s growth rate halved in the opening months of 2015. The CBI now sees the UK growing 2.4% this year and 2.5% in 2016, down from February’s forecasts of 2.7% and 2.6%, respectively.

The outlook suggests the government’s long-held aspiration of rebalancing the economy away from over-reliance on domestic demand will remain elusive. The CBI’s economists predict solid consumer spending and business investment will help to drive the economy this year and next. But with weaker US growth, a slowdown in China and a stronger pound hurting exports, net trade is seen as providing little or no support.

The CBI’s director of economics, Rain Newton-Smith, said failure to reach a deal between Greece and its creditors was one of the big risks to the UK outlook given the potential for financial market volatility spilling over into the real economy. Closer to home, the UK’s continued lacklustre productivity growth was also a threat.

“The UK will remain up among the lead runners in the pack of G7 economies over the next couple of years. But there is an imminent threat of breakdown of talks in Greece and a more slow-burn risk of weak productivity growth,” she said.

“While we are seeing a strong domestic picture, cracking the productivity conundrum would really help cement the recovery. Overseas, the picture is less rosy. The eurozone has regained some momentum this year, thanks in part to the European Central Bank’s quantitative easing programme, but growth is unlikely to pick up much further as the initial boost from falling oil prices fades.”

The CBI’s downgrade to the UK outlook follows a similar move by the British Chambers of Commerce last week. It now sees the economy growing 2.3% this year, down from a previous forecast of 2.7%. It, too, said the slowdown at the opening of 2015 would likely prove temporary. It forecasts growth of 2.6% in 2016 and 2017.

The Paris-based OECD thinktank used its latest outlook for big economies last week to warn that chancellor George Osborne should spread the pain of tough public spending cuts beyond the next two years.

Osborne’s most recent budget pointed to two years of sharp cuts, followed by a freeze in 2018-19 and a rise in 2019-20. But the OECD said that delaying some of the cuts planned for the financial years 2015-16 and 2016-17 would “lower the impact on growth”.

Cridland, however, was adamant that fostering growth and cutting the deficit were not mutually exclusive.

“In the last parliament there were lots of people who said austerity would prevent economic growth. To me, you do the two at the same time ... you make painful but necessary reductions and in another area you look at growth-enhancing measures.”

He said the “low-hanging fruit have already been taken” but the government could use its next budget on 8 July to announce growth-boosting measures in areas such as infrastructure and innovation.

“These are the areas that enhance the growth rate of the economy ... But making the necessary cuts in departmental spending and the necessary savings in the benefit budget – none of it easy – these things are not avoidable,” Cridland told reporters.

The group reiterated that most of its members wanted to remain in a reformed European Union and Cridland cautioned against rushing a planned referendum given businesses’ desire to secure a “meaningful” reform package first.



