Publication of the unemployment figures yesterday coincided with the release of data showing that pay - particularly in the private sector - is still surging ahead.
On Tuesday, Eddie George, the Governor of the Bank of England, warned that the economy was closer to overheating. That means interest rates could rise yet again, despite yesterday's increase in unemployment.
Some economists now fear that the UK could be moving into a painful period of rising unemployment and rising inflation.
A fortnight ago, the Bank of England's committee of economists, the Monetary Policy Committee (MPC), shocked both industry and the financial markets by raising rates by 0.25 per cent to 7.5 per cent.
Now a spate of unfavourable economic data - including yesterday's pay figures and news on Tuesday that inflation had hit a six-year high - has led many City economists to predict that rates could rise yet again.
Kevin Gardiner at Morgan Stanley said: "On balance, the data has increased the risk of a rate rise in the months ahead, possibly as early as July."
In the past, the MPC has said it was particularly concerned about the growth in earnings, particularly in the private sector. Yesterday's data revealed that average private sector earnings were almost 6 per cent higher in March 1998 than in March 1997.
The Treasury made its familiar plea to industry to show restraint. A spokesperson said: "It would be the worst of short-termism now to pay ourselves more today at the cost of higher interest rates, fewer jobs and slower growth tomorrow."
The Conservatives were quick to jump on the offensive. John Redwood, trade and industry spokesman, said: "The Government has lost control of earnings and prices. Now they will make manufacturing suffer with higher interest rates and higher sterling."
The recent rate rise is already filtering through to consumers. The Woolwich and Northern Rock yesterday became the latest mortgage lenders to put up rates. Both raised their rates to 8.95 per cent.Reuse content