Unemployment figures jump by 60,000

Bank of England Governor Mervyn King, speaking as the bank unveiled its quarterly inflation report, refused to rule out the possibility the UK was facing recession.

The jobless total grew to 1.67 million in the three months to June, while the number of people claiming Jobseeker's Allowance increased at the highest monthly rate for over 15 years. The claimant count increased by 20,100 in July to 864,700, the sixth consecutive monthly rise and the highest total since May of last year.

Unions called the figures a "tragedy" for working people being made redundant and warned of fresh job losses because of the state of the economy.

Mr King underlined the seriousness of the downturn by warning that the UK economy could suffer two quarters of negative growth as it went through a "difficult and painful adjustment".

Unveiling the Bank's latest inflation report, he did not rule out the possibility that the UK could enter a period of recession, as defined by two successive quarters of negative growth, adding it was "bound to be the case that there's a quarter or two of negative growth".

The Governor was commenting as projections from the Bank showed output broadly flat during the next year, thanks to weaker prospects for consumer spending and investment. The report also said with no rate cuts in the next two years, inflation would most likely peak at just below 5% in the coming months before falling sharply next year and dipping below the official 2% target in two years' time.

July saw the biggest monthly increase in Jobseeker's Allowance claimants since December 1992, with the total now 10,900 higher than a year ago. Manufacturing jobs continued to be lost, down by 37,000 in the latest quarter to a record low of 2.88 million, and vacancies were also down, by 47,000 in the three months to July to 634,900.

Despite the rise in the jobless figures, the number of people in work rose by 20,000 between April and June to 29.56 million, the second highest on record, swelled by a big rise in the number of post-retirement people in work. The number of women aged over 60 and men over 65 in work increased by 25,000 to reach a record 1.3 million, according to the data from the Office for National Statistics.

Work and pensions minister James Plaskitt said: "There are two sides to today's (Wednesday) figures. The welcome news is that the numbers on incapacity benefits and lone parent benefit continue to fall as our reforms kick in, and more people who were written off before now having the chance to join the high numbers in work."