Unemployment is still on course to soar above three million despite better-than-expected jobless figures, it was warned today.
Official data showed unemployment rising to 2.47 million in the three months to August, an increase of 88,000 on the quarter to May.
But worse lies ahead for the job market with public sector cuts and rising youth unemployment looming, experts warned.
"We think the fiscal squeeze could require around 750,000 job losses in the public sector - meaning that unemployment should easily surpass three million," Capital Economics' Vicky Redwood said.
School leavers and newly-qualified students are also set to enter the worst jobs market in a generation, IHS Global Insight's Howard Archer said.
"Many of the school leavers who cannot get a job will still be unemployed next year when the next batch of school leavers emerge," he added.
The Office for National Statistics (ONS) figures showed a slight 1,000 fall in the jobless total to 2.469 million in the three months to August - less than the 2.47 million seen during the three months to July - although the ONS warns against comparing overlapping periods for technical reasons.
Unions, politicians and business leaders gave a cautious welcome to the figures while warning against complacency.
TUC general secretary Brendan Barber said the figures gave "some cause for hope" but added: "The jobs crisis has not gone away and the economy remains very fragile."
The number of people claiming jobseeker's allowance in September increased by 20,800 to 1.63 million - the smallest rise since May 2008, the ONS said.
Further signs that the labour market could be stabilising came from the number of vacancies, which have fallen in every period since April last year. These held firm at 434,000 in the three months to September.
The jobless rate also remained stable month-on-month, at 7.9 per cent - the first time it has stayed the same since since March last year - although it is 0.3 per cent higher than in the three months to May.
Work and Pensions Secretary Yvette Cooper said: "Although unemployment isn't as high today as many feared it would be at the time of the Budget, it remains a serious problem which is why we must keep increasing support and advice to get people back into jobs."
Ms Cooper held out the hope that employment may recover more swiftly after the economy returns to growth than in previous recessions at an appearance before MPs on the Work and Pensions Committee today.
"It does look as if the economy is behaving in a different way compared to the early 1990s ... that may mean that there is a shorter gap between the economy starting to grow and unemployment starting to come down."
But opposition politicians highlighted that long-term unemployment had almost doubled to 1.1 million in the past year.
Liberal Democrat work and pensions spokesman Steve Webb said the issue would be "a devastating legacy" of the recession unless tackled immediately.
"It is only a matter of time before a million young people will be looking for work, yet the Government is still sitting on its hands for 10 months before it offers them help," he said.
Shadow work and pensions secretary Theresa May added: "Labour are now the party of unemployment with two-and-a-half million people unemployed, and one in five young people who can't find a job."
Figures next week are expected to show the economy returning to weak growth between July and September after five quarters of recession, but business groups said the UK was far from out of the woods.
David Kern, chief economist at the British Chambers of Commerce (BCC), said: "A sustainable recovery is not guaranteed. Although confidence is strengthening, businesses are still facing serious pressures ... lending is still too weak, and many are struggling to retain their skills base."