The Prime Minister admitted today that the Government had to do more to get the economy moving after "horrific" figures showed unemployment at a 17-year high, the number of young people out of work nearing a million and Jobseeker's Allowance claimants increasing for the seventh month in a row.
Both sides of industry voiced concern about the state of the jobs market, while Labour leader Ed Miliband told David Cameron it was time to admit the Government's plan "isn't working".
The Prime Minister told the Commons: "I accept we have got to do more to get our economy moving, to get jobs for our people, but we mustn't abandon the plan that has given us record low interest rates."
Unemployment increased by 114,000 to 2.57 million in the quarter to August, the worst total since the autumn of 1994, giving a jobless rate of 8.1%, the highest since 1996.
Youth unemployment reached a record high of 991,000, while the numbers claiming Jobseeker's Allowance increased for the seventh month in a row, to 1.6 million.
Other figures showed a 178,000 slump in employment in the quarter to August - the biggest fall in more than two years - and the largest-ever cut in the number of part-time workers, down by 175,000.
There was a record reduction of 74,000 in the number of over-65s in employment, according to today's data from the Office for National Statistics.
The number of people classed as economically inactive increased by 26,000 to 9.35 million, a rate of 23.3%.
Taking the inactivity rate and the new jobless figures together, half of 16 to 24-year-olds are now not employed, it was revealed.
Around 150,000 people were made redundant in the latest three months, an increase of 6,000 over the previous quarter.
The number of unemployed 16 and 17-year-olds increased by 3,000 to 205,000, while long-term unemployment, counting everyone out of work for more than a year, rose by 60,000 to 867,000.
Employment fell by 178,000 to 29.1 million, the biggest quarterly fall since the summer of 2009, while part-time employment dipped by a record 175,000 to 7.78 million.
At Prime Minister's Questions in the Commons, Mr Miliband said it was time for Mr Cameron to admit the Government's plan "isn't working", adding: "The same script, month after month. Doesn't he realise? It isn't working."
Employment Minister Chris Grayling said: "It is clear that we are seeing the effect of the international economic crisis on the UK labour market. That's why last week we announced the right-to- buy housing scheme to support growth and today we are offering more support for jobseekers as sector-based work academies come on stream, combining real training, work experience and a guaranteed interview.
"Our new Work Programme is now up and running and offers people who have lost their jobs flexible, tailored support to get back into jobs and stay there."
TUC general secretary Brendan Barber said: "These are terrible figures. The Government's austerity measures have turned unemployment into a full-blown crisis - with job losses not seen since the darkest days of the recession."
John Philpott, chief economic adviser at the Chartered Institute of Personnel and Development (CIPD), said: "These labour market figures are truly horrific, with the economy shedding almost 15,000 jobs each week between June and August.
"The quarterly rise in unemployment is reminiscent of an economy in recession rather than any kind of recovery and confirms that the private sector just isn't creating enough jobs at present to offset public sector job cuts.
"With 5.6 unemployed people for every job vacancy, the labour market is back to where it was in the depths of recession in 2009 and the underlying problem is getting even worse, given that one in three unemployed people have now been without work for over a year.
"Many more months like this and we're likely to see the re-emergence of the kind of 'Gissa Job' economy that scarred Britain in the 1980s and 1990s."
Graeme Leach, chief economist at the Institute of Directors, said: "These are grim figures, and are likely to get worse before they get better, but abandoning the deficit reduction plan will do the unemployed no favours."
John Walker, chairman of the Federation of Small Businesses, said: "It is clear that, with unemployment rising to a 17-year high and with youth unemployment also at a record high, the Government's growth strategy is simply not working.
"We know that small firms are struggling to find the resources to pick up the slack.
"The Government must now reinstate the graduate internship scheme, increase work trials and extend the National Insurance contributions holiday to existing firms."
Katja Hall, the CBI's chief policy director, said: "Today's unemployment numbers make grim reading, especially for our young people. The continuing rise in youth unemployment is a grave concern for us all."
Unite union general secretary Len McCluskey said: "The policies that David Cameron is recklessly pursuing is akin to a drunken captain of an ocean liner, steering straight towards the rocks, heedless of the many warnings of the unwilling passengers.
"Today's unemployment figures are a scandal, particularly for young people who are also suffering record high unemployment levels."
The number of civil servants fell by 29,051 to just under half a million in the year to March, other figures showed, with median earnings of £23,760.
Unemployment in the regions between June and August was:
Region / Total Unemployed / Change on quarter / Unemployment rate
North East 142,000 plus 19,000 11.3%
North West 282,000 minus 10,000 8.2%
Yorkshire/Humber 259,000 plus 32,000 9.7%
East Midlands 183,000 minus 1,000 7.9%
West Midlands 234,000 plus 8,000 8.9%
East 202,000 plus 3,000 6.7%
London 425,000 plus 28,000 10.0%
South East 257,000 plus 4,000 5.8%
South West 175,000 plus 5,000 6.6%
Wales 131,000 plus 16,000 9.0%
Scotland 212,000 plus 7,000 7.9%
N Ireland 65,000 plus 4,000 7.6%