Unemployment rises by almost 40,000 in just three months

Unemployment is rising at its fastest rate for two years as the economic crisis starts to claim its victims.

The number of people who want to work but do not have a job jumped 38,000 to 1.64million in the three months to the end of April.

Economists warned yesterday this is only the beginning, a major worry for families already struggling to make ends meet.

Vicky Redwood, UK economist at Capital Economics, warned: 'The recent rises are likely to be just the tip of the iceberg.

'The risk of a vicious circle of falling house prices and rising unemployment is growing by the day.'

By the end of next year, she predicts unemployment will hit 2.3million, the highest level since 1996 when John Major was still in power.

Yesterday's figures from the Office for National Statistics follow warnings from the Bank of England that unemployment could rise sharply.

The worst hit sector is finance and business with the number of jobs falling 20,000 over the last three months. 

The Home Builders' Federation fears widespread redundancies in the property sector. Around 300,000 people work in the housebuilding industry, with many thousands more in connected areas such as estate agents, solicitors and mortgage brokers.

On the dole: An extra 9,000 people signed on last month alone

Shares in the housebuilding giant Barratt Developments have collapsed nearly 95 per cent over the last year, from more than £10 to less than £1.

Rising unemployment poses the greatest threat to the economy because of the knock-on effects, such as home-buyers falling behind with their mortgages and shoppers deserting the High Street.

Shadow Work and Pensions Secretary Chris Grayling said: 'The increasing gloom in the jobs market simply underlines the economic challenge that we now face.

'Gordon Brown's failure to look after the public finances in the years that the economy was doing well means it's going to be very difficult to make the changes we now need to ensure that unemployment doesn't get significantly worse.'

• Alistair Darling came under attack last night from peers and business leaders.

A Lords committee said the Chancellor's dithering over tax changes was putting the economy at risk.

The cross-party Lords Economic Affairs committee said the Government's 'uncertainty of direction' had prompted widespread concern that the tax system was 'no longer sustainable or predictable'.

Labour has been been criticised over changes to capital gains tax, levies on foreign businessmen and the scrapping of the 10p tax rate.

Richard Lambert, director general of the Confederation of British Industry, said: 'In the past 18 months the Government has lost the trust of the business community on tax.'