Unemployment rose to its highest level in 14 years in the second quarter of the year as the recession continued to force businesses to make cutbacks.
The number of people out of work increased by 220,000 to 2.44 million in the three months to 30 June – taking the jobless rate to 7.8%. This is the highest level since 1995, although June experienced the smallest rise in unemployment in four months.
Meanwhile, people claiming unemployment benefit lifted by a relatively small 25,000 to 1.58 million un July - or 4.9% of the workforce - figures from the Office for National Statistics showed.
While this is its worst level for more than 12 years - and the 17th month in a row where the claimant count has risen - the government says it is concerned that many people are not claiming benefits, and has ordered an inquiry into the issue.
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There are also concerns that more people are likely to find themselves out a job in the coming months; despite data signalling that the recession is past its worst, the jobless rate traditionally lags behind economic activity.
Vicky Redwood, UK economist at Capital Economics, says: “The big picture is still that unemployment is unlikely actually to start falling until economic growth has returned to its trend rate of 2.5% or so. And that’s a long way off.
"The annual growth rates of average earnings both including and excluding bonuses slowed in June. Overall, then, the labour market looks likely to continue weighing on household spending for some time yet.”
Howard Archer, chief UK and European economist at IHS Global Insight, warns that unemployment is likely to rise above three million in 2010. “The outlook for the labour market still looks pretty horrible, despite mounting signs that the economy could achieve modest growth in the third quarter,” he explains.
Meanwhile, the Centre for Economics and Business Research gives an even gloomier forecast, predicting that the dole queue will stretch past the four million mark next year.
Average earnings growth excluding bonuses is also at its lowest level since records began in 2001. Meanwhile, average earnings in the three months to June rose at an annual 2.5%, when measured including or excluding bonuses.