Unemployment rate rising at fastest rate for 16 years

An "avalanche of redundancies" was predicted yesterday as unemployment rose at its fastest rate since the last recession 16 years ago.

The jobless total rose in July to 1.72 million, up 81,000 on the figure in April, and the highest total since the spring of 1999. The number of people claiming jobseeker's allowance rose for the seventh month in a row in August, by 32,500 to 904,900 – the largest monthly jump since December 1992. The employment level also fell for the first time in more than a year, down by 16,000 to 29.5 million. Unemployment, at 5.5 per cent, is also up, 0.2 per cent on the previous quarter. Around 138,000 people were made redundant in the three months to July, up by 28,000 from the previous quarter – the highest figure for more than a year.

The figures follow a prediction by David Blanchflower, a member of the Bank of England's Monetary Policy Committee, that unemployment would hit two million by Christmas, with the number joining the dole queues rising at an alarming rate. Most economists acknowledge that the slowing of the flow of migrant workers into the UK, notably from Poland, will help matters, but few doubt the trend will be inexorably upwards. John Philpott, chief economist at the Chartered Institute of Personnel and Development, commented: "With horribly bitter timing, this extremely weak set of job figures – which we expected but hoped not to see – has arrived. With business confidence diminishing almost by the day, it is becoming clear that more employers are readying themselves for further job cuts. This greatly increases the chances of an autumn and winter avalanche of redundancies."

Last week the director general of the CBI, Richard Lambert, warned that employers may be "hoarding" labour until they see how long the recession is likely to last. Howard Archer, of the economic consultancy Global Insight, added: "Employment prospects in the financial sector look increasingly worrying, given the heightened turmoil there." The TUC predicts that as many as 700,000 people could find themselves in the ranks of the long-term unemployed by next year.

However, wages growth only picked up modestly in July, which will be more reassuring for ministers and the Bank of England, and at 3.5 per cent is well below the 4.5 per cent level generally considered consistent with the Bank of England's 2.0 per cent inflation target. An interest rate cut in October or November is now more likely.

The CBI added its voice to calls for rate cuts with its latest survey of manufacturing industry. Ian McCafferty, the CBI chief economic adviser, said: "Manufacturers have been hit harder than expected by the economic slowdown, and they are not optimistic about the next three months. We believe the Bank should have room to reduce rates by half a point in November, and this new survey reinforces our call for a cut."