Unemployment fears rise as economy slows down

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Official forecasts for economic growth and job creation are falling further behind reality, with strong evidence of a slowdown in the economy emerging yesterday with the release of the latest surveys of business sentiment.

The Chartered Institute of Purchasing and Supply (Cips) said that, while activity in the service sector edged up again in June, the pace of expansion slowed and, critically, new job generation "remained minimal". Meanwhile, the Recruitment and Employment Confederation/KPMG Report on Jobs reported a slackening in demand for permanent and temporary staff placements.

Permanent staff vacancies rose at the slowest pace in six months, while short-term staff vacancies increased at the weakest rate since November 2010. Bernard Brown, a partner and head of business services at KPMG, said: "There has been a marked deterioration in the UK jobs market with permanent placements growing at their weakest rate in almost two years. A quick job market recovery in the UK now looks increasingly uncertain."

Though disappointing, neither piece of news is grim enough in itself to force the hand of the Bank of England's Monetary Policy Committee, which meets today to decide their next move on rates. The Bank is universally expected to leave rates on hold at their historic low of 0.5 per cent and not expand quantitative easing.

The Bank will at least be pleased that both surveys suggest little pressure on pay. The Cips/Markit purchasing managers index for the service sector showed a reading of 53.9, compared with 53.8 in May. But analysts pointed out that the increase did not reverse May's decline and the index remains some way below March's high of 57.1.

The forward-looking parts of the poll also pointed to further pain in the months ahead – and a serious shortfall in official forecast of economic growth: the new business index saw the second fall in a row, while a sharp fall in business expectations left the index at its lowest level since last October.