Britain's leading business group has cut its forecast for UK growth this year for a second time due to weak business investment and the squeeze on household income.
The CBI now estimates the UK economy will grow by just 1.3% over the whole of 2011, compared with its previous forecast of 1.7% growth made in May, which was a reduction from its forecast of 1.8% in February.
The organisation, which speaks for 240,000 businesses employing a third of the private workforce, left its forecast for 2012 unchanged at 2.2% growth.
It said that despite firms having plenty of cash, they are reluctant to spend due to concerns over eurozone and US debt.
The CBI forecast investment will rise by a meagre 3.7% over 2011, but added this will speed up to 9.3% in 2012 as the recovery gathers momentum and business confidence improves.
Recent official figures showed that the UK economy grew by just 0.2% in the three months to June, as manufacturing slowed and a number of one-off factors affected the figures.
Chancellor George Osborne dismissed calls after the figures to amend his deficit reduction plans and stimulate the economy more.
The CBI predicts the third quarter will see a rebound to growth of 0.8% and then grow consistently between 0.5%-0.6% each quarter until the end of 2012.
John Cridland, the CBI's director-general said: "The economic outlook has become even more challenging but we still expect the economy to continue to grow modestly this year and next.
"It may be a lacklustre recovery but with solid bet trade contributions and the positive impact of business investment, the UK will remain on a growth tack."