U.K. economic growth will slow more than forecast this year to match the weakest pace since 1992, curbed by higher credit costs, the Confederation of British Industry said.

The economy will expand 1.8 percent, down from an original forecast of 2 percent, and will slow to 1.7 percent in 2009, Britain's biggest business lobby said in an e-mailed statement. The central bank will cut its benchmark interest rate three more times to reach 4.5 percent in 2009, the group forecast.

"Having enjoyed two years of strong growth, we are now living in uncertain times," said Richard Lambert, the CBI's director general and a former Bank of England policy maker. "We are facing a financial shock on a scale not experienced in recent times, which is coming on top of already slower growth."

Bank of England policy makers have said they face a dilemma as they balance the need for interest-rate cuts to spur economic growth against the risk of inflation, which reached a nine-month high in February. The bank renewed an offer of emergency funds to lenders last week and hosted a meeting of executives as officials tried to stem the financial crisis.

"The credit crunch will take longer to work through than we thought," Lambert said in an interview on BBC Radio 4 today. "If you go around the country, outside the banking and finance sectors most business are finding business pretty good but they do expect credit conditions to tighten later this year."

Consumer Spending

Consumer spending growth will slow to 1.6 percent this year, almost half the pace of 2007, the CBI said. The Office for National Statistics will release fourth-quarter gross domestic product figures on March 28.

The CBI forecast inflation will accelerate to 3.2 percent in the third quarter, which would require Bank of England Governor Mervyn King to write to the government with a public explanation. Inflation accelerated to 2.5 percent in February.

"There are real concerns about inflation in the short term and the Bank of England has the tricky task of keeping a grip on inflation," Lambert told Radio 4. "We think they will cut rates later this year."

King and four other policy makers will testify in Parliament tomorrow on the bank's economic forecasts.