UK unemployment expected to peak at 2.7 million

Unemployment in the UK will peak at 2.7 million next year, lower than previously predicted, although the jobs outlook would get worse if economic growth is weaker than expected, a new report said today.

The Chartered Institute of Personnel and Development (CIPD) predicted that the jobless total will be around 2.4 million in 2015, roughly the same as today and still 800,000 higher than the pre-recession level.

The report, published ahead of new unemployment figures today, said the lower forecast was partly due to lower than expected unemployment in the first three months of this year.

The CIPD also revised down its forecast for economic growth this year, to 1.4%, from its previous 1.6%, and warned that the outlook for jobs would deteriorate if economic growth is weaker than expected or pay rises accelerate, which might put pressure on employers to cut staffing costs.

"Recent news of job losses in parts of retail is therefore especially worrying since it highlights the extent to which many businesses in relatively high employment sectors, dependent on domestic consumer spending, are entering much tougher times," said the report.

Dr John Philpott, the CIPD's chief economic adviser, said: "Just as pay freezes and pay cuts protected jobs in the recession, the ongoing pay squeeze is helping our anaemic economy support employment.

"This is clearly preferable to a further very sharp rise in unemployment, but a combination of falling real wages and the likelihood of unemployment well above the pre-recession level for several years to come represents an equivalent amount of labour market distress.

"While the specific labour market symptoms of economic austerity are different than initially expected the ongoing pain is no less severe as the UK workforce continues to suffer an implicit trade-off between jobs and real living standards.

"In this respect one must hope that the coalition Government will not stick rigidly to its existing plan A for fiscal deficit reduction if much weaker economic growth makes the trade-off ever harder to bear."

Last month's unemployment figures fell by 88,000 to 2.43 million, although the number of people claiming jobseeker's allowance jumped by 19,600 to 1.49 million.

A spokesman for the Department for Work and Pensions said: "The most recent figures show that the rise in private sector employment in the year to March 2011 was 520,000, offset by a fall of 143,000 in the public sector.

"We have a long way to go before we deal with all the economic challenges ahead but our new Work Programme will make a big difference in ensuring that people on out-of-work benefits can take advantage of the one million rise in employment that the independent Office Budget for Responsibility expects over the next few years."