ECONOMIC growth will slow down next year before recovering in 2006, according to the latest figures from the CBI.

The employers' organisation's prediction for UK Gross Domestic Product (GDP) growth for 2005 is down by 0.3 per cent to 2.5 per cent. Looking ahead to 2006 for the first time, the forecast predicts growth of 2.6 per cent.

Export growth is now expected to be four per cent in 2005, down from the 4.9 per cent the employers’ organisation was forecasting three months ago. There will be a slight revival in 2006 to 4.2 per cent.

Nigel Bourne, the CBI South East regional director, said: "The economic headwinds from slower global growth and higher commodity prices will hold growth in the UK back next year.

“Nevertheless growth will still be close to expectations, so this is an easing in the pace of growth rather than a downturn.

“As a result the CBI believes the Chancellor's three per cent to 3.5 per cent forecast made in the spring Budget look distinctly optimistic and leaves his revenue calculations in danger.”

With growth now likely to be lower than previously expected, the CBI says Government revenues are likely to be squeezed.

As a result, the CBI has increased its forecast for Government borrowing this year by over £4bn and next year by more than £6bn.

The CBI expects the Government to have borrowed £37.1bn this financial year and to need to borrow £38.4bn in 2005/6.

Mr Bourne added: "When it comes to meeting his golden rule of balancing the budget over the course of the economic cycle, it's clear the Chancellor is cutting it very fine, but he will not be far out.

“The problems being stored up for the future are of much more concern. With so little in reserve, the rule is in danger of being missed by a significant amount over the next cycle.

“There will be tough choices between tax rises and spending restraint ahead."