Despite faster economic growth in 2010, urgent action to reduce the budget deficit could prolong recovery.
The Confederation of British Industry's (CBI) latest economic forecast predicts that the UK economy will grow by 1.3% in 2010 - up from 1% in its previous Marc forecast.

The slight upward revision reflects a strengthening in the UK economy, with industrial production showing solid growth and overseas demand for UK-made goods strengthening, boosted by the relative weakness of sterling.

The CBI expects the economy to grow by 0.8% in the second quarter with growth forecast to pick up slightly over the course of 2011.

However, the business group believes the outlook remains uncertain, particularly with government spending expected to fall sharply.

CBI director general Richard Lambert said: "Turbulence has returned to global financial markets as concerns about European sovereign debts have intensified, underlining the need for the UK to tackle its large budget deficit urgently."

He added: "Although the risks to the economic outlook increased, our view is that the UK's tentative recovery will be sustained. However, economic growth will be weak and we do not expect a return to pre-recession GDP levels until 2012."

Household spending is also forecast to struggle this year, growing by 0.4%, against a backdrop of higher inflation and relatively weak wage growth. However, stronger growth of 2.2% is expected next year as the labour market improves.

CBI chief economic adviser Ian McCafferty commented; "Growth is likely to be tempered somewhat in the second half of the year, as government spending cuts get underway. However the recovery is forecast to build some momentum next year when the spending of households and businesses is expected to strengthen."