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In a trading update, it added it had also incurred additional restructuring costs of 拢10m-拢15m which would have to be factored into expected earnings. Shares fell 5.25p to 111.75p by 9am, after falling as much as 9% in the first minutes after the stock market opened.

The firm said: 鈥淭rading remains challenging in some areas given the uncertainty that exists in many public sector markets. We expect this situation to continue until the spending review on 20 October.鈥�

However, it said bank debt had been reduced by more than expected, to 拢90m. And it said the government鈥檚 plan to reduce spending by 25% would lead to a greater demand for firms that could deliver efficiencies.

It said its order book and bidding pipeline totalled 拢1.8bn and 拢2.2bn respectively, the same as last year.

Francesca Raleigh, an analyst at Numis Securities, said the lack of clarity in the update prolonged a sense of uncertainty surrounding Mouchel. 鈥淐ovenant breaches are still a concern,鈥� she said, citing its exposure to public sector cuts and low confidence in the management team.