Michael Saunders, an economist at Citigroup, said the firm had begun the year with a growth forecast stronger than many of its peers in the private sector.
However, he now believes a pick-up in business activity and a consequent boost to jobs and demand is unlikely, the FT reports.
“Our base is not a recession, but an extended period of sluggish growth and rising unemployment,” Saunders said.
Although British companies have cash on their balance sheets, the slide in financial markets along with continued fears over eurozone government debt has jolted confidence badly, he said.
“This will cause firms to postpone expansion and return to cost-cutting mode,” he added.
Citi sharply downgraded its 2012 GDP growth forecast last month, predicting the UK economy will grow by only 1% this year, and 1.9% in 2012, compared with its forecasts of 1.4% and 2.2% growth the previous month.
As well as the UK, Citi lowered its GDP forecasts for the US, Japan and the eurozone.
Economists at J.P. Morgan also noted that “making GDP forecast revisions while markets gyrate may be rather like trying to catch a falling knife.”
However, the firm nevertheless downgraded its own growth forecasts for the second half of 2011, according to the FT.
