The summer saw the number of people out of work increase by 164,000 bringing total unemployment to 1.79 million.
This is its biggest rise since 1991. Government figures show that, between June and August, the official unemployment rate hit 5.7%, up from 5.5%. In-line with the economic downturn, the number of vacancies also fell and average earning inflation slowed to 3.4% - its lowest rate since 2003.
The number of people claiming jobseeker's allowance also rose by 31,800 to 939,900 in September.
Vicky Redwood, UK economist at Capital Economics, predicts that the number of people claiming this benefit will surpass 1 million by the end of this year.
“With the UK heading into recession, we expect [unemployment] to rise by a total of 1.5 million to around 3 million or 9% by the end of 2010,” she says.
Despite concerns earlier this year that high inflation would become embedded in pay, Redwood says this threat has all but disappeared.
“The 3.4% headline rate of average earnings growth in August was its lowest since 2003,” she explains. “With inflationary pressures outside the labour market now easing markedly too, the way’s clear for aggressive interest rate cuts.”
Recent research from the Centre for Economic Business Research (cebr) forecast a 28,000 fall in the number of City jobs in 2008, with a further 34,000 job cuts in 2009.
If these cuts are realised, employment will be taken back to the levels last seen in 1998.
According to the cebr report, corporate finance dealing with mergers and acquisitions will be the worst hit sector, and is likely to lose half of its 15,000 employees over the next two years.
Activity in derivatives is also set to suffer with employment trimmed by 46% over the next two years. Legal and professional services, insurance, fund management, securities and equities sectors are also all expected to cut headcounts by up to 20%.
Richard Snook, senior economist at cebr, says: “The credit crunch has spiralled in to what is the worst financial crisis since the 1930s. It has spread through global markets like a virus and threatens to plunge the world into recession.
"The City will be hard hit by the crisis - we expect it will set back by a decade, with 62,000 jobs lost over the next two years."