Unemployment in biggest rise for 15 years with more job losses to

Unemployment has registered its biggest rise since the slump of the early 1990s, as the economic slowdown takes a bigger-than- expected toll on jobs.

The number of people out of work and claiming benefits jumped by 15,500 in June, the Office for National Statistics said. The fifth straight monthly increase exceeded the expected 10,000 rise and was the biggest since a jump of 71,000 in December 1992. At that time, unemployment was 9.9 per cent compared with 2.6 per cent today on the Government's chosen measure.

Housebuilders have announced more than 4,000 job cuts in recent weeks, with many more predicted to follow. The financial sector is also expected to lay off thousands of workers as the credit crunch hits profits. Economists expect unemployment to rise further as the economy slows and companies shed workers.

Alan Clarke, UK economist at BNP Paribas, said: "Given that labour data tend to lag activity, we are confident that even worse news on jobs will surface in upcoming labour reports. As unpleasant as it seems, the increase in unemployment is a price we are going to have to pay in order to overcome the UK's inflation problem."

The Bank of England is trying to ease the economic slowdown while grappling with the highest inflation since it gained independence for setting interest rates in 1997. The central bank has made it clear that its main aim is to stop surging food and energy prices feeding through into wage claims.

Reports on earnings growth yesterday helped calm concerns about inflation expectations. Annual average earnings growth in the three months to May eased slightly to 3.8 per cent from 3.9 per cent, the ONS said.

A separate report showed that pay deals in industry are increasingly being deferred because of the tough economic climate. The Engineering Employers Federation said average rises were worth 3.1 per cent in the three months to June, unchanged from the previous month.

The survey of almost 300 settlements covering 50,000 manufacturing workers showed that just over 7 per cent had been deferred, the highest level since the end of 2002, while a similar number involved a wage freeze.

David Yeandle, the EEF's head of employment policy, said: "The relatively low level of pay settlements, together with the rise in the number of companies deferring their agreements, confirms the tougher economic climate. Manufacturers are using their experience of managing previous downturns to do all they can to contain costs."

Hundreds of thousands of local government workers went on strike yesterday in protest at wage settlements that are not keeping pace with the cost of living. But some economists expect rising unemployment to ease wage pressure and let the Bank cut interest rates.

Sterling fell as investors bet that the unemployment figures would help push the Bank of England into cutting rates. Spencer Dale, the Bank's new chief economist, told the House of Commons Treasury Committee he expected inflation to move "substantially higher" this year before easing as the economy slows.

Stephen Timms, the Employment minister, said the unemployment numbers were disappointing but that, with the total number of UK jobs at a record high of 29.6 million, the employment market was resilient.

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