THE CBI has reduced its forecast for economic growth next year, claiming high oil prices are likely to hit world demand and rising interest rates will make UK consumers less willing to spend.

Announcing his new figures, CBI director-general Digby Jones urged the Bank of England to slacken the pace of interest rate rises saying the monetary policy committee must not "overdo the rate rise medicine." The CBI's forecast assumes the base interest rate will level out at 5.25 per cent early in 2005.

But Mr Jones warned that the risks and uncertainties surrounding this forecast are greater than usual.

He argued that even this relatively low peak in base rates would be too high if global or domestic demand were suddenly to deteriorate. The CBI predicts UK gross domestic product growth will average 3.4 per cent this year as a result of changes in the way that government sector output is measured.

It expects more moderate growth next year. The 3.0 per cent forecast in May has now been downgraded to 2.8 per cent.

This is said to reflect a slower recovery in export growth as rising oil prices hit demand from industrialised countries, and a moderation in UK consumer spending growth.

The CBI expects export growth of 1.8 per cent for this year. The 4.9 per cent it forecasts for next year is down from the 5.5 per cent it forecast three months ago.