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UK economy 'flying' but euro zone a threat: CBI chief

Reporting by Lauren Fedor, writing by Holly Ellyatt
Claire Gillo | PhotoPlus Magazine | Getty Images

The U.K. economy might have shown robust growth this year but it's not immune to a slowdown in Europe's largest economies Germany and France, John Cridland, Director-General of the Confederation of British Industry (CBI) told CNBC.

"I'm more worried than I've been for a long time about the euro zone," the head of the business lobbying organization said in an interview with CNBC. "I think slowing of growth particularly in Germany, and the lack of reform particularly in France are a risk to European growth and therefore to British growth," he warned.

"The British economy is flying. I don't see at the moment that those headwinds are slowing us down. But I'd like to avoid those headwinds slowing us down," he added.

The U.K. economy has seen robust growth over the last year when compared to its euro zone counterparts, although output slowed slightly in the third quarter. Britain's gross domestic product (GDP) expanded by 0.7 percent in the three months to September from the previous quarter, the Office for National Statistics said in late October. Year-on-year, the economy grew 3 percent, with both figures meeting analyst expectations.

Read more: Britain's GDP growthslows in third quarter

In the euro zone it's a different matter, however, with the single currency region stagnating in the second quarter. Most worrying has been the loss of momentum in the region's largest economy Germany, the growth driver for the rest of the euro zone.

Flash third quarter GDP data is due on Thursday and if a continued slowdown is seen, the European Central Bank will be under more pressure to aggressively stimulate the economy, although it has so far not launched a full-blown quantitative easing (QE) program like that seen in the U.S.

Read more: Euro zone growth stagnates, Germany contracts

Cridland said Germany needed to reflate its economy by investing in infrastructure and France needed "to move faster on structural reforms in its labor markets and in its pension system"

"If those two euro zone economies take action, then I think the European Central Bank will need to be able to take action to buy government bonds, to go for full quantitative easing. In that way, European growth will not stall, and the British economy will continue to fly."

UK needs to cut taxes: CBI chief

Cridland's comments come as the CBI launched a report which the CBI is presenting at its annual conference on Monday. The report called on the British government to offer immediate help to boost living standards for low income and working families.

It said the government could do this by raising the threshold at which National Insurance contributions are made (payments by workers and employers towards state benefits) and by offering free childcare to one- and two-year olds.

The CBI also outlined a package of measures to raise pay sustainability. These include a business focus on raising productivity to boost pay; better routes into higher-skilled paid work and measures to ensure young people don't fall behind in school.

Cridland said that the best way to generate more tax revenues was through lower tax rates. "All the evidence shows if you cut tax rates, you produce a more entrepreneurial economy. The more people who earn more money, the more tax they will eventually pay, even if tax rates are lower. So we need a pro-enterprise economy, but at the end of the day we need to invest to save.

Although spending cuts are necessary to tackle the British deficit, Cridland said, "you can't just cut and slash." "You need to invest for growth, and you need to make sure that the benefits of growth reach everyone in society."

- By CNBC's Holly Ellyatt, follow her on Twitter @HollyEllyatt. Follow us on Twitter: @CNBCWorld