Britain's jobs market appears to be cooling as official statistics show a fifth consecutive month of rising joblessness together with record levels of economic inactivity.
The figures from the Office for National Statistics (ONS) showed that the total number of people in work fell by 72,000 in the three months to May, while the number of economically inactive men rose to an all-time high of 16.6 per cent of the workforce.
The number of people claiming unemployment benefit rose in June for the fifth month running – the first time the UK has seen five consecutive increases since the recession in the 1990s.
Particularly worrying was the fact that the number of full-time jobs also fell by 82,000, almost all in the private sector. Only in the public sector is employment and pay still buoyant.
"The spring labour market figures are easily the weakest for some time," said John Philpott, Chief Economist of the Chartered Institute for Personnel and Development (CIPD).
"The big worry now is that more private sector jobs could be at risk later this year if the Bank of England's Monetary Policy Committee (MPC) decides to keep interest rates on hold until the autumn," he added.
"To date the MPC has been very successful in signalling to employers that it will act to ensure that any cyclical dips in demand will be short and shallow. As a result there has been a tendency for employers to hoard rather than shed staff during slow periods. But the MPC's challenge during the current slowdown may prove harder because employers in labour intensive service sectors are amongst those experiencing the toughest conditions."
Philpott also warned that while employers are relatively sanguine about short-term job prospects there is growing pessimism about the medium term, raising the possibility of a serious jobs squeeze later this year and into 2006 unless the MPC cuts interest rates to improve employer confidence.
"The risk is that if private sector employers think they face a marked slowdown they will try to cut costs by shedding jobs. This of course could present an even greater threat to continued economic stability by hitting consumer confidence.
"An August cut in interest rates of at least a quarter of one percent by the MPC would help avert a jobs squeeze and greatly reduce the chances of the economy suffering a hard landing. But any further delay could prove costly"