The CBI expects GDP this year of 1.7%, down from its previous forecast of 1.8%.
Next year it predicts growth of 2.2%, a cut from February’s forecast of 2.3%.
It said UK growth will get a boost from exports and business investment will also help drive economic growth.
However, public spending cuts, the volatility of oil prices, and the impact of the earthquake in Japan on UK supply chains all weigh on the CBI forecast.
It suggested “modest” interest rate rises are likely from Q3 2011 through to mid-2012, with rates hitting 2.5% by Q4 2012.
Ian McCafferty, the CBI’s chief economic adviser, said: “The recovery continues to be choppy and lacking in vigour. Expansion in certain sectors is being offset by weaker performance in others.
“What remains striking is how little we expect the pace of growth to accelerate in 2012, and that it will be far less robust than we’d normally expect in the second and third years of a recovery.”
The Bank of England should act “sooner rather than later” to raise rates to keep inflation expectations under control amid rising commodity prices, he said.
Unemployment will not peak until Q4 2011, when it will hit 2.62m, remaining at that level until in falls in Q4 2012 to 2.52m, the CBI added.
