The Confederation of British Industry (CBI) has predicted slower economic growth for the next two years in the wake of the global credit crunch.

The employers' body forecast the economy would grow by 1.8% this year and 1.7% in 2009, making the chancellor's prediction of between 1.75% and 2.25% for the next 12 months look optimistic.

The CBI also warned of rising inflation due to higher food and energy prices but added that slower economic growth would keep this in check, allowing the Bank of England to cut interest rates twice this year and again in 2009.

It added that while the slowdown has hit the financial markets and property sector hard, business conditions on the whole remained good.