THE case against a further hike in interest rates was boosted last night by a survey that claimed the outlook for the UK economy had worsened.

Industry lobby group CBI lopped 0.2 per cent off its forecasts for economic growth this year as high oil prices and weak consumer spending take their toll at a time when slowing global growth hurts demand for British exports.

It now expects the UK economy to expand by 2.5 per cent this year - below the 3.1 per cent growth in 2004 and the three per cent to 3.5 per cent anticipated by Chancellor Gordon Brown.

Pressures have mounted since the turn of the year and the CBI said it believed oil prices would be around 10 US dollars higher over the next 18 months than it previously thought.

This will hit consumption around the world and squeeze demand for UK goods, while manufacturers are finding it difficult to raise prices to offset the increase in fuel costs.

In a separate survey, the CBI said manufacturing orders were ''well below normal'' in May and one-fifth of firms expected to cut prices rather than raise them over the next three months.

Compared with 17 per cent of companies which expected to hike prices, the balance of minus three per cent is the weakest for 14 months and the CBI said growth in manufacturing would slow to 0.4 per cent this year.

The health of the manufacturing sector is considered by the Bank of England when setting interest rates, while worries about consumer spending have also influenced its decision to keep the cost of borrowing on hold at 4.75 per cent for nine months in a row.

The CBI said that spending by Britons would not contribute as much to economic growth in 2005 and 2006 as it had earlier forecast.