Britain’s private sector is shrinking at the fastest pace since the nation was in lockdown – adding to fears of a recession.

The monthly purchasing managers’ index (PMI) for September delivered the weakest reading since January 2021.

Disregarding the pandemic, it was the worst since March 2009 and suggested that the economy was on course to shrink by more than 0.4 per cent in the third quarter.

Bank of England officials had been given a view of the figures before voting earlier in the week to keep interest rates on hold, citing fears of a slowdown as a key reason for the pause.

PMI figures from across the eurozone also painted a grim picture – with Germany increasingly seen as the sick man of Europe, suffering a sustained decline in demand.

Separate data yesterday offered a more cheerful prognosis for the UK economy with a poll showing consumer confidence recovering and retail sales figures showing a rise of 0.4 per cent in August.

But the retail improvement was only a partial recovery after a 1.1 per cent decline in rain-hit July.

Investec economist Sandra Horsfield said rising unemployment and the squeeze from higher interest rates were likely to hold back the High Street from seeing much more of a recovery this month. ‘We remain of the view that the economy is entering more troubled waters and that a (relatively mild and short-lived) recession is likely to ensue this winter,’ Horsfield said.

The UK ‘flash’ PMI figures gave a reading of 46.8 for September, down from 48.6 in August.

‘Weaker demand due to cost of living pressure and higher borrowing costs were cited by survey respondents, alongside cutbacks to spending among clients in the real estate and construction sectors’ the report said.

‘Some manufacturers suggested that customer destocking had acted as a brake on their output requirements.’

Chris Williamson, chief business economist at S&P Global Market Intelligence, said: ‘The disappointing PMI survey results for September mean 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 0.4 per cent, with a broad-based downturn gathering momentum to hint at few hopes of any imminent improvement.’ The Bank of England’s outlook is slightly less dire but it has still downgraded its third quarter GDP growth forecast from 0.4 per cent to 0.1 per cent.

There has been a huge spike in holiday searches for Sardinia after fans of The Little Mermaid discovered the Disney box office hit was filmed on location on the island.

Following the release in May of the live-action remake of the iconic 1989 cartoon there was a 216 per cent increase in searches to the Mediterranean destination on the easyJet Holidays website.

Fans are ‘flooding online’ to book their own watery adventure on the Italian island where Halle Bailey, who plays Ariel, was filmed on the shore alongside Jonah Hauer-King, who plays Prince Eric, easyJet Holidays said.

The film follows the adventures of the mermaid princess Ariel who is fascinated with the human world and makes a deal with a treacherous sea witch to trade her voice for a life above the water.

The surge in searches for Sardinia is part of a new ‘set-jetting trend’ where film buffs take to the skies in search of ‘destinations providing TV escapism’, easyJet Holidays said.

Its findings point to a ‘significant year-on-year increase’ in the new trend, which is being driven by ‘the prevalence of international settings in popular TV shows and movies’.

The travel site revealed that the second season of Emmy-winning drama The White Lotus resulted in a tourism spike of 198 per cent to Sicily, ‘as wanderlusters seek to holiday like wealthy but miserable romantic Tanya McQuoid-Hunt and her put-upon assistant, Portia’.

The premiere season of House of the Dragon, meanwhile, inspired die hard ‘Thronies’, said easyJet Holidays, ‘to flock to the Spanish city of Granada, which has seen a 132 per cent increase in searches’.

Similarly, a statement said, Paris is seeing ‘unwavering interest year on year as hopeful romantics yearn for their own Emily in Paris experience’. Searches for trips there have rocketed by 143 per cent.

EasyJet Holidays added that ‘everyone’s favourite murder-mystery of 2022, Glass Onion, has influenced a 122 per cent increase in searches to the Greek islands’, while coming-of-age drama Aftersun has triggered a reported 162 per cent increase in searches for the destination where it was shot – Turkey.

This revelation has inspired a new genre of package holidays for fans wanting to bring TV and film fantasies to life.

EasyJet Holidays has crafted a ‘Jetflix fix‘ for ‘keen telly-travellers’ to immerse themselves in their favourite on-screen worlds in destinations such as Sicily and Paris.

Commercial director Paul Bixby said: ‘We all seek escapism through our screens and so it’s no surprise that our favourite TV shows and movies are influencing our travel choices.’ 

Government borrowing costs soared to Liz Truss-era levels yesterday as mounting concerns about inflation set the scene for yet more interest rate rises.

Official figures showed inflation in the UK fell to 8.7 per cent in April, from 10.1 per cent in March and a peak of 11.1 per cent last year.

But it was still above the 8.2 per cent pencilled in by investors, and so-called ‘core’ inflation – which strips out energy prices – jumped from 6.2 per cent to a 31-year high of 6.8 per cent. 

The report from the Office for National Statistics sent tremors through the bond markets as investors bet that interest rates could hit 5.5 per cent this year – far higher than previously thought.

Two-year gilt yields, a key measure of Government borrowing costs, jumped to 4.39 per cent – the highest level since the turmoil that followed the disastrous mini-Budget of Truss and Kwasi Kwarteng last year. 

The yield was around 3.2 per cent just two months ago and yesterday’s rise was also the biggest since the Truss-Kwarteng debacle. 

Five-year and ten-year gilt yields also jumped to their highest levels since October at over 4 per cent, while the pound made gains against the dollar and the euro before easing.

Rob Clarry, investment strategist at wealth manager Evelyn Partners, said the reaction on the bond markets was ‘instant’ as traders bet on further rate hikes – dashing hopes that borrowing costs were at or close to their peak.

Bond yields surged under Truss as global markets fretted over how Britain could afford her plans to cut taxes and help households with energy bills. 

The turmoil sent the cost of mortgages and other loans soaring. But, having fallen under Truss’s successor Rishi Sunak and Jeremy Hunt – Kwarteng’s replacement as Chancellor – borrowing costs are rising again.

The Bank of England has already raised interest rates 12 times since December 2021, taking them from 0.1 per cent to 4.5 per cent.

It was hoped that rates were not at or close to a peak. But with inflation higher than feared, investors now see a 100 per cent chance that rates will rise to at least 4.75 per cent in June.

Further hikes to 5 per cent in August and possibly as high as 5.5 per cent later in the year are also on the cards.

‘Bond markets took one look at the latest inflation figures and took the view that interest rates are going to keep going up,’ said Russ Mould, investment director at AJ Bell. 

‘Sticky inflationary pressures, particularly in food, will strengthen the argument for the Bank of England to raise rates again.

‘That will bring more pain to companies and consumers as the cost of servicing borrowings becomes more expensive.’

The pound rose back towards $1.25 and €1.16 before giving up its gains following a strong run so far this year.

‘The reason that you haven’t seen more of a reaction today is the context,’ said Ben Laidler, global markets strategist at trading platform eToro. ‘The pound’s already had a big rally this year.’

He added that growing concerns about the health of the global economy were boosting the dollar, which is often seen as a safe asset in times of strife.