In its latest economic forecast, the CBI has predicted annual UK GDP growth of 1% in 2010 and 2.5% in 2011, considerably lower than the Treasury's 3.5% estimate for 2011.

The CBI said that the removal of certain stimulus measures, such as the VAT cut and car scrappage scheme, together with subdued consumer spending, would dampen the recovery.

Following publication of the forecast, CBI director general Richard Lambert repeated his call for the chancellor to restore fiscal balance by the 2015-16 financial year, while avoiding damaging tax rises for businesses.

"It is vital that business has the space to grow, invest and create new jobs," he said. "That's the only way out of our current fiscal mess."

The CBI predicted that consumer spending would not rise strongly this year due to weak ongoing wage growth and concerns over job losses, with unemployment expected to peak at around 2.75m in the autumn.

Lambert said: "The economic outlook is improving, but the lack of a clear driver for growth will make for a bumpy ride in the months ahead. The CBI expects the recovery in 2010 to be slow and sluggish, with few signs of real strength until well into next year.

"To convince international investors that the spiralling budget deficit will not derail the economy, the government must set out a credible plan to balance the books by 2015-16, two years earlier than currently planned."

The CBI added that public finances remained "in very poor health", with estimated net borrowing of £168bn in 2009/10 representing 12% of GDP and set to rise to £177bn in 2010/11 before falling to £149bn in the following financial year.