Capital Economics predicts that the jobless total will continue to rise sharply over the months to come.
Unemployment could shoot up from two million to 3.5 million and put household budgets under severe strain, a top economist warned today.
Jonathan Loynes, chief European economist for Capital Economics, said that the massive rise would be provoked by thousands of small businesses shutting down in to the current recession. The economic downturn, caused by the global credit crunch, has put financial pressure on businesses due to reduced sales volumes and new difficulties in gaining access to loans from banks.
Unemployment has already risen to a decade-long high in the UK, with latest government figures showing a jobless total of 2.03 million. Staff cutbacks also tend to lag behind economic upturns - meaning that net job losses are likely to continue long after the recession ends.
Loss of income caused by redundancy also leads to higher levels of mortgage, loan and credit card debt arrears among consumers - meaning that rising unemployment has knock-on effects to the financial services system as a whole.
"I suspect we'll see unemployment rise for several years at least and we suggested that the widest measure of unemployment will rise to about 3.5 million - so that's another 1.5 million on top of what we've already seen," Mr Loynes said.
"In terms of the impact on small businesses, it's got to be negative and a lot of small businesses will undoubtedly go bankrupt."
