Declining economic activity as a result of higher interest rates has led to a fall in business output and hiring intentions, new research suggests.

Business advisory firm BDO said the effects of tighter monetary policy from the Bank of England were being reflected in the labour market, with a fall in demand for workers.

At the same time, higher rates were said to have driven a slowdown in productivity growth.

Kaley Crossthwaite, partner at BDO said: “Businesses are reacting to the higher interest rate environment with conservative decisions about hiring.

“Caution is the watchword.

“Predictions for a recession paint a weaker picture for the economy, and we can expect a slump in output, optimism and employment in the final months of 2023 as a result of rising unemployment and higher rates for businesses.”