Foot and mouth together with the US economic downturn will have serious implications for the UK.

The CBI has forecast economic growth this year will fall from two and a half per cent to two per cent because of the combined impact on businesses - last year GDP growth was three per cent.

It says that foot and mouth accounts for 0.3 percentage points of the reduction forecast and has renewed calls for further government measures to alleviate short-term problems.

By the end of this year, the CBI believes ILO unemployment will increase by around 50,000 compared to previous forecasts.The group called on the government to extend rate relief to all small businesses affected by foot and mouth, not just those in rural areas as at present.

It also said that the government should offer export advice to companies that urgently need to diversify products or services because of lost home markets and should channel relief to affected areas through one body.

Digby Jones, the CBI director-general, said: "This preliminary forecast indicates a sharp slowdown in growth. But this is no time for people to panic because the UK economy is fundamentally strong. The word 'recession' should stay right off the agenda."Jones called on the government to act now. "Once businesses are lost to an area it is hard to get them back, especially in a rural economy. Government help now might ease long-term difficulties by making the difference between a company sinking or staying afloat," he said.