Page last updated at 08:11 GMT, Tuesday, 29 December 2009

Unemployment 'will peak at 2.8m' in 2010

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% of population claiming Jobseeker's Allowance, by parliamentary seat

Unemployment will peak at 2.8 million in 2010, according to the latest forecast from the Chartered Institute of Personnel and Development.

The business group said unemployment would continue to rise for the first six months of the new year, despite the recovery in the UK economy.

The forecast is more optimistic than previous predictions.

Earlier this year, the CIPD had said it expected unemployment to peak at 3.2 million as a result of the recession.

The total number unemployed in the UK currently stands at 2.49 million - or 7.9% of the population - following hundreds of thousands of job losses in 2009.

A further 250,000 jobs will be lost in the UK before the second quarter of 2010, the CIPD said.

But improvements in the general economic outlook meant the jobs market was not expected to suffer as much as previously thought.

Pay squeeze

However those that remained in work were likely to see below-inflation pay rises, the CIPD added, with employers still intending to cut labour costs further.

While the Retail Prices Index (RPI) measure of inflation is expected to reach 3% next year, pay rises are predicted to average 2%.

Martin Shankleman, employment correspondent, BBC News

Has the gloom in unemployment been overdone?

The CIPD's drastic revision of its jobless peak from 3.2 million to 2.8 million reflects a growing belief among experts that the labour market is behaving quite differently to past recessions.

This time, employees have been willing to swallow pay cuts to stay in work, while firms seem keener to hold on to staff in readiness for the upturn.

But any optimism should be tempered by the fear of another wave of redundancies post-Christmas.

And the CIPD also warns that many in work could suffer a pay cut in real terms in 2010, because pay rises may not match the expected jump in inflation.

Dr John Philpott, chief economic adviser to the CIPD, said it was a "remarkable outcome" that unemployment had not taken off further, given the scale of the downturn.

"I think the labour market is a lot more flexible than it was in the past," he said. "We've seen employees take wage freezes or pay cuts or shorter hours in order to stave off redundancies.

"The big question for 2010 is how long that can be sustained."

Unemployment could also rise higher if the UK economy failed to recover as expected, or the government imposed deeper spending cuts, Dr Philpott warned.

"If... there was a more immediate cut in public spending - which could be the case if the Conservatives gain power at the general election due in the first half of 2010 - unemployment might peak at a higher rate than we currently forecast," he said.

An end to rising unemployment will also depend on the continuing recovery of the UK economy.

Most economists expect the UK to exit recession in the early part of 2010, with the government predicting 1.25% growth over the year.

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