UK economy
CBI slashes UK growth forecasts for 2015 and 2016.Reuters

The Confederation of British Industry (CBI) has cut its growth forecast for the UK economy, citing lower-than-expected first-quarter growth as the primary reason.

The lobby group now expects the economy to grow at 2.4% in 2015 and 2.5% in 2016, compared to 2.7% and 2.6% forecast earlier, respectively.

In the first quarter, the British economy expanded at a pace of 0.3%, marking the country's weakest growth since the end of 2012.

Nevertheless, the CBI expects a 0.8% growth in the second quarter, following a "temporary blip" in the first quarter, with improved consumer spending amid low inflation and interest rates, and rising incomes.

The group, however, warned that the referendum to decide on continued EU membership of the country as well as a possible "messy" end to the Greek crisis could hurt the British recovery.

"Risks remain in the form of economic instability in Greece and a sluggish eurozone, and clearly the EU referendum is a hot topic in Britain's boardrooms," said CBI director-general John Cridland.

"Businesses now have certainty that the referendum is happening, but not the outcome. However, most of our members are clear they want to remain in a reformed EU and will get behind an ambitious reform agenda."

"A messy resolution of the Greek crisis could spark financial market and exchange rate volatility which could spill over into the real economy. And uncertainty ahead of the EU referendum raises the risk around our forecast of reduced sentiment and a delay in investment spending."

The CBI added that weaker-than-expected growth in productivity could hamper the sustainability of growth.

"While we are seeing a strong domestic picture, cracking the productivity conundrum would really help cement the recovery," said Rain Newton-Smith, CBI director of economics.

The Bank of England earlier slashed the country's growth outlook for 2015 to 2.5% from 2.9%.