Unemployment rockets towards three million

Jobless total rising at fastest rate since 1991; Value of pound falls as confidence plummets

Unemployment is rising at its fastest rate in almost two decades, and could climb as high as three million by 2010. The Office for National Statistics (ONS) reported yesterday that a further 75,700 Britons found themselves on Jobseeker's Allowance last month, the steepest rise since 1991. Many economists predict that the growing toll of redundancies – with 27,000 set to go at Woolworths – could push that figure over 100,000 each month, as the recession takes an unrelenting grip on the economy.

The jobseekers "claimant count" crested the one million mark last month for the first time since July 2000. At 1.07 million, it is up 257,000 on the same period last year. The unemployment total, on the internationally agreed definition, now stands at 1.864 million, or 6 per cent of the workforce, its highest since 1997. The increase of 137,000 in the three months to October is the tenth successive rise.

The worry now must be that the rise in unemployment and the fear of more lay-offs has already fatally damaged confidence, and that the authorities' attempts to revive the economy through tax cuts, public spending and reductions in interest rates may have little effect.

Economists were uniformly horrified by the ONS numbers. David Blanchflower, a member of the Bank of England's Monetary Policy Committee, forecast that the jobless toll would "probably" exceed three million, and asked: "Where is the light at the end of the tunnel? I can't see any." Howard Archer, of Global Insight, said it was "just a horrific set of data". Vicky Redwood, of Capital Economics, judged that joblessness is rising "at a terrifying speed". Amit Kara, at UBS, said: "To see so many job losses this early in the cycle is extremely worrying."

The pound fell to yet another all- time low against the euro on the news of renewed weakness in the economy. It stood at €1.08 last night. The Bank of England is expected to follow the example of the US Federal Reserve and cut interest rates to close to zero during January and February.

There is little comfort or joy anywhere in the labour market: employment slumped by 115,000 in the three months to October; job vacancies were down by 118,000 in November; and the number of people made redundant soared to 180,000.

There is normally a "lagging indicator" as firms hang on to their staff until they feel that shedding jobs is unavoidable, so the precipitate rise in unemployment confirms other evidence that the British economy has "fallen off a cliff" in recent weeks.

The December survey of the Bank of England's network of regional agents, also published yesterday, says that "demand for labour had contracted further" and that "the majority of contacts were looking to reduce head count over the next few months".

The Bank's agents and the director general of the CBI, Richard Lambert, warned once again of the drought of bank lending. Mr Lambert said that "credit flows, on which companies depend for day-to-day business, remain severely constrained". The CBI's latest survey of shop sales also showed steep falls.

As in previous recessions, the burden of unemployment is unevenly spread. The North-east endures the highest rate of joblessness and the highest percentage-point increase; but unemployment fell, slightly, in the East Midlands and East Anglia.

The public sector, especially the NHS, also continues to thrive; the payroll is up 15,000 in the past year, to 5.76 million, against a reduction of 128,000 in private-sector employment. Decreases were recorded in most sectors, with the largest falls occurring in the retail, hotels and restaurants trades, and in finance (down 16,000).

As in the past, young men are the most likely to be hit. Jenny Willott, the Liberal Democrat work and pensions spokeswoman, said: "Young men are bearing the brunt, yet the planned changes to the New Deal will leave them on benefits for 12 months before helping them get a job, rather than the current six months."

The general secretary of the TUC, Brendan Barber, said: "If ever there was a sign that we need a fundamentally different economic approach in the UK, then this is it."

Views from the dole queue

Ilyas Siddiqui, 57, married, one daughter

I have just been made redundant after 19 years of agency work on the Underground, for Transport for London. I'm incredibly angry with them. I turned up one day as usual and they gave me a letter and said I was sacked. No notice, no explanation, nothing. It's impossible for agency workers – they can get rid of you so easily. My daughter is at university so I need money to help her. I was getting £8 an hour, with the agency taking £1. At my age it's not easy to get different types of work.

* Walid el Basset, 23, unmarried

I left college a few months ago with qualifications in catering and hospitality, and health and safety. Everyone said "go to college, it will help you get a job", but now I'm struggling. I'm in here every day – I thought at Christmas there should be more catering and hospitality work, not less. I don't regret going to college – it's important to get qualifications – but I feel I need to get a job to save money. It does feel like there are jobs out there, and these centres remind you of that, but the more I go in, the more I feel depressed that I still haven't got work.

Sara Elayan, 21, married, mother of one

My daughter was diagnosed with epilepsy three months ago and that changed my priorities – for now, I want to look after her more than get a job. I did NVQs in fashion, photography and art but I would be very happy with office work, or maybe working in a call centre. It's difficult while my husband is studying in Italy. The Jobcentre Plus offers a lot of help for people like me. Mums get benefits and it's useful to talk to the staff about jobs. The importance of these places will only grow as it feels like a lot of people are out of work.

Bradley Dillon, 21, unmarried

I've been in work since I left school five years ago. Five months ago I had a part-time job on minimum wage. I thought I'd be better off getting full-time work but have not found any. That means I've got no money for Christmas. A few weeks ago I applied for an office job. There were 14 of us going for one job. The labour market is flooded. I think it's going to be a rough year ahead.

Interviews were conducted outside Jobcentre Plus on Lisson Grove, Marylebone, London.

Transport & communications -15,000

Transport ought to do better than losing 15,000 jobs in the last quarter, but Stagecoach and National Express results suggested that things are far from rosy as commuting numbers fall away.

Energy and water -1,000

North Sea oil dominates this. Traditionally volatile, it has seen some astonishing swings in the oil price this year; from $95 a barrel in January to $150 in July to under $50 now. It should bounce back next year.

Manufacturing industries -43,000

The plummeting pound hasn't delivered much relief yet to manufacturing exporters, but in time some benefits should come though. Fresh challenges from emerging economies can only intensify.

Construction + 31,000

A little respite for the building trade. However, surveys of building sector managers suggest that this small improvement is unlikely to persist. The public spending splurge announced for roads and schools should help.

Distribution, hotels & restaurants -51,000

As we see from the collapse of Woolies and the anguish of stores such as MFI, retail has become the most visible victim of the credit crunch. The cut in VAT may be a case of too little too late.

Other services -18,000

On the whole, the service sector has grown faster and offered better wages than factories, and, even now that trend seems set to continue. Those differentials could now be squeezed.

Finance & business services -72,000

Bankers have obviously been hard hit; and the consolidation of newly-merged banks, such as the Lloyds TSB/Halifax Bank of Scotland combination will see more jobs lost. Even lawyers are being fired.

Education, health & public admin +39,000

The public sector is to expand, mopping up some of the pool of unemployed. Job security, final salary pensions and civilised working hours are some of the advantages: more former bankers are training to be teachers, for example.