The CBI forecast a GDP growth rate of 2 per cent next year – down 0.2 per cent on September's figure and its third quarterly downgrade in a row.

The CBI said consumer spending would drop more sharply than previously thought and predicted growth falling from 3.1 per cent this year to 1.9 per cent in 2008.

It also said growth in investment was likely to slow down next year but said the robust expansion of emerging economies and expected depreciation of sterling would boost export markets and shore up the UK's economy.

Ian McCafferty, the CBI's chief economic adviser, predicted the Bank of England would follow up this month's interest rate cut with another one in the new year and possibly a third later in 2008.

But McCafferty moved to assuage fears of a major economic slump.

“The fundamentals of our economy remain sound and talk of a full blown recession is overstated,” he said.