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Recession warning as employers cut staff at fastest pace since 2009

recession

Britain’s businesses are braced for a recession as employment fell at its fastest rate since the financial crisis, a new survey shows.

Job numbers dropped sharply this month, according to the latest Purchasing Managers’ Index (PMI), as companies struggle with higher borrowing costs and weakening demand.

The influential survey of companies, conducted by credit rating agency S&P Global, found that employment in the services sector dipped for the first time since the pandemic.

It also revealed a steep decline in business activity, as the PMI fell to 46.8 in September, down from 48.6 in August. This was a greater fall than economists expected.

The Bank of England received the survey results early, which prompted policymakers to keep interest rates unchanged at 5.25pc.

Minutes from Thursday’s Monetary Policy Committee referred to how “underlying growth in the second half of 2023 was also likely to be weaker than had been expected.”

Chris Williamson, chief business economist at S&P Global, said the survey indicated the “sharpest fall in employment since 2009”, aside from the pandemic.

He said it also shows that a “recession is looking increasingly likely in the UK”.

“The steep fall in output signalled by the flash PMI data is consistent with GDP contracting at a quarterly rate of over 0.4pc, with a broad-based downturn gathering momentum to hint at few hopes of any imminent improvement,” he said.

“Underscoring the severity of the UK’s deteriorating situation, September’s downturn is the steepest since the height of the global financial crisis in early 2009 barring only the pandemic lockdown months.”

The PMI results come after the latest GDP figures revealed the economy shrank by 0.5pc in July.

However, it also found that inflation appears to be easing.

The costs faced by businesses and the prices they charged customers increased at the slowest pace since early 2021, the PMI said.

It chimes with data from the Office for National Statistics which showed inflation slowed to 6.7pc in August from 6.8pc in July, raising hopes that the cost of living crisis is coming to an end.

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Ashley Webb at Capital Economics said the latest dip in inflation “all-but confirms” that the Bank of England will not raise interest rates any further.

“But as we expect core inflation to fall only slowly, we think the Bank will keep rates at their peak of 5.25pc until late in 2024,” Mr Webb added.

Export orders are also falling sharply, according to a separate survey from the CBI, which showed output slid quicker than expected in the three months to September and is set to stagnate for the rest of the year.

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