Bank of England issues urgent economy warning as employers cut staff at fastest pace since pandemic

Looking ahead, the picture remains gloomy as finance chiefs expect to cut staffing levels by around 0.7 per cent over the next year — the weakest outlook since October 2020.

The surge in job losses follows months of contradictory government briefings that unsettled markets and left firms unsure how to plan.

The Bank of England survey, released just before Rachel Reeves’ Autumn Budget, showed private-sector employment falling at its fastest monthly rate since July 2021.

Rob Wood, chief UK economist at Pantheon Macroeconomics, attributed the employment collapse to “chaotic pre-Budget tax hike speculation”, which resulted in “collapsing job growth”.

The economist believes this latest survey data will push the Bank of England towards reducing borrowing costs by a quarter percentage point when policymakers meet later this month.

“Sharply weaker employment gains nail a December rate cut,” Wood said. He added that only a significant surprise in inflation figures or official labour market statistics could now prevent the Monetary Policy Committee from lowering rates in December.

Official figures from the Office for National Statistics paint an equally concerning picture of Britain’s jobs market.

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Unemployment climbed to five per cent during the three months to September, reaching its highest level since the period spanning December 2020 to February 2021.

The rise exceeded forecasts, with many analysts having predicted a rate of 4.9 per cent before the Budget announcement on 26 November.

Liz McKeown, director of economic statistics at the ONS, said: “Taken together, these figures point to a weakening labour market.”

She noted that while the jobless rate had reached a post-pandemic peak, vacancy numbers remained largely stable.

Average pay growth eased slightly to 4.6 per cent in the third quarter, down from 4.7 per cent previously.

The Bank of England faces a difficult balancing act as it weighs deteriorating employment against persistent price pressures.

The central bank’s survey highlighted elevated inflation expectations as a significant concern, with three-year CPI forecasts rising to 3 per cent while one-year projections held steady at 3.4 per cent.

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Official data showed inflation running at 3.6 per cent in the year to October, considerably above the two per cent target.

This conflicting evidence presents a challenge for both hawkish and dovish members of the Monetary Policy Committee, who have placed different weight on jobs data versus inflation when casting their votes.

Governor Andrew Bailey and fellow committee members are expected to address the impact of the Chancellor’s measures in the coming days.