Rachel Reeves' economy stands on the brink of recession as rising unemployment has activated a critical economic warning signal, according to experts.
Leading retail executives have issued stark alerts about impending job losses.
The unemployment rate has surged to 4.7 per cent from 4.1 per cent twelve months ago.
This crosses the threshold for the Sahm rule, an indicator that historically signals approaching economic downturns.
John Roberts, founder and chief executive of FTSE 250 electronics retailer AO, said: "We've lived through a few recessions in the last 25 years, and I think we're heading into another one."
The retail sector faces mounting pressures from persistent inflation and increased employment costs, with leaders across industries contemplating workforce reductions.
Mr Roberts attributed the looming downturn to escalating inflation impacting business expenses.
He also highlighted that recruitment has become significantly costlier following recent tax rises.
Rachel Reeves' economy stands on the brink of recession as rising unemployment has activated a critical economic warning signal, according to experts
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"Fundamentally, we have inflation coming through, and we are now feeling that in the costs across businesses," he told a BBC podcast.
"Business leaders I speak to right across the piece are looking at how they can take people out."
The AO chief, who retains approximately 18 per cent ownership of the company he established in 2000, criticised Labour's Employment Rights legislation as "enforced dogma" that would deter businesses from recruitment.
The proposed law grants employees immediate unfair dismissal claims rather than the existing two-year requirement, which also introduces expanded protections for freelance workers.
The Sahm Rule signals a recession when the three-month moving average of the national unemployment rate increases by 0.5 percentage points or more above its lowest point in the previous 12 months | GBNEWS/ONSMr Roberts cautioned these changes would particularly disadvantage school leavers and those from underprivileged backgrounds seeking employment opportunities.
Professor Joe Nelis, economic adviser at accountancy firm MHA, told GB News that whilst the Sahm rule serves as a dependable recession predictor in America, its effectiveness in Britain is less consistent.
"The Sahm rule is regarded as a reliable early-warning indicator in the US.
But while it may be a helpful signal of economic stress, its predictive power in the UK is more mixed, as shifts in unemployment here tend to be slower and more muted," he explained.
Nevertheless, Professor Nelis acknowledged the significance of current conditions.
"However, the 0.5 percentage-point increase in unemployment over the past year does suggest that the economy is under strain and raises the likelihood of a short, mild recession in late 2025 or early 2026."
JD Sports delivered further evidence of economic strain on Wednesday, with the retailer revealing pre-tax profits dropping 13.5 per cent during the six months ending August 2.
The FTSE 100 retailer cited "continued pressure on consumer finances" as a key pressure on the current trading environment.
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The estimated number of vacancies fell by 44,000, or 5.8 per cent, in the three months to July, bringing the total to 718,000 | ONSEconomic growth slowed from 0.7 per cent in Q1 to 0.3 per cent in Q2, then flatlined in July, ONS data shows.
Job vacancies fell by 10,000 to 728,000 in the three months to August, reinforcing concerns about weakening labour demand.
Professor Nelis proposed measures to avert a deeper economic contraction, "To limit the impact, the Bank of England could look at bringing interest rates down sooner to support spending, while the Government might use targeted infrastructure projects or short-term job programmes to steady the labour market without reigniting inflationary pressure," he said.
Policymakers face tight constraints as inflation held at 3.8 per cent in August, nearly double the Bank of England's two per cent target.