Osborne should lay out euro crisis stimulus plans - IFS

Chancellor George Osborne should publish broad stimulus plans for an emergency such as a break-up of the euro zone in next month's budget, the country's leading fiscal policy think-tank said on Wednesday.

The Institute for Fiscal Studies said that while austerity is needed in the coming years to fix public finances, the case for some short-term stimulus had strengthened as the economy has probably entered a mild recession.

But it acknowledged the large risks to even a temporary spending boost, saying any loss in market trust could cost Britain dearly as it has to issue 740 billion pounds to fund new borrowing and refinance maturing bonds over the next five years.

Britain's Chancellor of the Exchequer
George Osborne arrives at the
Treasury in London January 25, 2012.
REUTERS/Suzanne Plunkett

"Regardless of whether or not Mr. Osborne thinks that a substantial short-term fiscal stimulus is appropriate at the moment, he should set out now broadly what he would do under alternative scenarios where the economic outlook for the UK is sharply weaker - such as were the Eurozone to collapse" it said.

IFS programme director Gemma Tetlow said clarity now could avoid accusations of any U-turn later.

"It might be reassuring for businesses and individuals that, if something were to go wrong, the government would be prepared and in a position to do something in the short-term," she said.

The debate about the need for a short-term boost is already heating up ahead of the budget, due on March 21, as the economy contracted by 0.2 percent at the end of 2011.

Chancellor Osborne has blamed the euro zone debt crisis for Britain's meagre economic performance over the past few months. The government has said it is working on plans for all eventualities but has so far refused to give any details.

Osborne announced more spending cuts in November to meet his main target to erase the budget deficit within five years as the weak economic outlook drives up borrowing.

A Treasury spokesman said the IFS's report supported the government's deficit policy. "The IFS say that ... any fiscal stimulus big enough to make a difference would undermine investor confidence and so risk higher interest rates," he said.

Consultancy Oxford Economics, which provided the IFS with alternative growth scenarios, said if the euro zone breaks up, Britain's economy would slump by 1.7 percent this year and 0.9 percent in 2012. Its central view is for 0.3 percent growth this year and 1.9 percent next, lower than the government fiscal watchdog Office for Budget Responsibility's forecast of 0.7 percent growth in 2011 and 2.1 percent in 2013.

The IFS said under its main scenario - using the OBR's growth forecasts - the government's net borrowing was likely to be nearly 3 billion pounds lower in 2011/2012, and some 9 billion pounds lower in 2016/2017 than the OBR itself predicts.

©Reuters 2012

Greece, creditors on verge of clinching debt deal

Greece and its private creditors said on Saturday they were piecing together the final elements of a debt swap and expected to have a deal ready next week, essential for sealing a new bailout and avoiding an uncontrolled default.

Greece and its private creditors said on Saturday they
were piecing together the final elements of a debt swap and expected to have a deal ready next week

After muddling through round after round of inconclusive talks, the negotiations are in their final phase - though it appeared unlikely that a preliminary deal would be secured in time for a European Union summit on Monday.

Greek bondholders said the two sides were finalising a deal along the lines of a proposal made by Jean-Claude Juncker, the chairman of euro zone finance ministers.

The proposal made by Jean-Claude Juncker,
 the chairman of euro zone finance ministers

The bondholders' comments suggested creditors had accepted Juncker's demand for a coupon, or interest rate, of below 4 percent on new, longer-dated bonds that Athens will swap for existing debt.

The coupon had been the main stumbling block in the talks, with euro zoneministers rejecting private creditors' demand for a coupon of at least 4 percent - above the 3.5 percent level Greece and its European partners had been holding out for.

"Next week we will be in a position to complete the debt swap," Finance Minister Evangelos Venizelos said, citing significant progress at Saturday's talks. "We are really one step away from the final deal."

He confirmed that the two sides were working along the "exact framework" provided by euro zone finance ministers.

Charles Dallara, chief of the Institute of International Finance that negotiates on behalf of banks and insurers, is due to leave Athens on Sunday but will remain in contact with Greek authorities, the IIF said.

Still, for Athens, progress on the debt swap is at risk of being overshadowed by increasingly problematic talks with its foreign lenders, whose inspectors are in town demanding unpopular reforms that no politician wants to be linked to.

DENSE, DIFFICULT AND CRUCIAL

Crushed by 350 billion euros of debt and running out of cash quickly, Greece is scrambling to appease the "troika" of its official lenders - the European Commission, European Central Bank and International Monetary Fund - and stitch up a deal with private creditors simultaneously.

Unimpressed with Athens dragging its feet on reforms, the troika has said they could hold up aid if more is not done to make the Greek economy more efficient.

"It's all very dense, difficult and crucial," a Greek finance ministry official said.

The IIF are one of Greece's lenders

European paymaster Germany is pushing for Athens to relinquish control over its budget policy to European institutions as part of discussions over a second rescue package, a European source told Reuters.

With many Greeks blaming Germans for the austerity medicine their country has been forced to swallow, officials in Athens dismissed the idea as out of the question. "The government stresses that this responsibility belongs exclusively to the Greek government," said government spokesman Pantelis Kapsis.

"The government has made a series of steps to improve the effectiveness of the public administration and a closer monitoring of the efforts to achieve fiscal targets.".

The European Commission, the executive arm of the 27-country bloc, said it wanted the Greek government to maintain autonomy.

"The Commission is committed to further reinforcing its monitoring capacity and is currently developing its capacity on the ground," a spokesman said. "But executive tasks must remain the full responsibility of the Greek Government, which is accountable before its citizens and its institutions. That responsibility lies on their shoulders and it must remain so."

A government source in Berlin said Germany's proposal was aimed not just at Greece but also at other struggling euro zone members which receive aid and are unable to make good on their obligations. "All options can obviously be introduced only with the agreement of, for example, the Greeks themselves," he added.

NEW BONDS FOR OLD

The debt swap, in which private creditors take a 50 percent cut in the nominal value of their Greek holdings in exchange for cash and new bonds, is also a prerequisite for the country to secure a 130-billion-euro rescue plan drawn up last year.

The two sides have broadly agreed that new bonds under the swap would have a 30-year maturity, but the talks ran into trouble over the coupon and whether the ECB and other public creditors must take losses on their holdings.

A deal, aimed at chopping 100 billion euros off Greece's debt load, must be sealed in about three weeks at the latest as Greece has to repay 14.5 billion euros of debt on March 20.

Otherwise Greece could sink into an uncontrolled default that might spread turmoil across the euro zone and tip the global economy back into recession.

"There is progress"- IMF Managing Director, Christine Lagarde

IMF Managing Director Christine Lagarde said on Saturday that euro zone members were making progress to overcome their crisis but must do more to strengthen their financial firewall to stop the crisis spreading, adding the IMF was ready to help.

"There is progress as we see it," Lagarde told a panel discussion at the World Economic Forum inDavos.

"But it is critical that the euro zone members actually develop a clear, simple, firewall that can operate both to limit the contagion and to provide this sort of act of trust in the euro zone so that the financing needs of that zone can actually be met."

Concern has also grown in recent days that the debt swap may not do enough to get the country's debt reduction plan back on track, and that Greece's European partners will be forced to stump up funds to cover the shortfall.

The German news magazine Der Spiegel reported on Saturday that Greece's international lenders thought Athens would need 145 billion euros of public money from the euro zone for its second bailout, rather than the planned 130 billion euros.

The magazine said the extra money was needed because of the deteriorating economic situation in Greece, echoing a Reuters report on Thursday.

Greece is in its fifth year of recession, and hopes of an end to the crisis in the near term have virtually gone, because of the combination of squabbling politicians, rising social anger and its inability to push through badly needed reforms.


©Reuters 2012

EU and US economic leaders spar at Davos

EU and US economic leaders spar at Davos 

Key policy-makers from Europe and the United States thrashed out ideas for pulling the eurozone out of its debt crisis at the Davos forum on Friday, days ahead of a key European summit.

While cloistered in a snow-bound conference centre high in the Swiss Alps, the global political and business elite had one eye on Greece, hoping that a long-awaited deal to write down its debt might at last fall into place.

Greek Prime Minister Lucas Papademos is in talks with banks and insurers on a voluntary exchange of bonds that would wipe 100 billion euros ($130 billion) off the country's debt of 350 billion euros.

The deal under discussion would see private creditors take a "haircut" of at least 50 percent on 200 billion euros in debt. Previous talks stalled over the amount of interest to be paid on the remaining debt.

Any failure to strike a deal could trigger a messy default, which would be an economic disaster for Greece itself, a threat to banks holding too much sovereign debt and pile on the pressure on other eurozone state.

World markets and delegates in Davos have begun to show signs of cautious optimism that a deal is near, and that Monday's EU summit will draw a line under the debt crisis and allow governments to move on to pro-growth measures.

The finance ministers of Germany and France and the head of the European Central Bank were in Davos to debate strategy and defend the beleaguered single currency area after it was attacked by Britain's leader.

They will all then meet again on Monday in Brussels for the latest in a series of high stakes EU summits, the bloc's first since Standard & Poor's downgraded the credit rating of a slew of eurozone member states.

And US Treasury Secretary Timothy Geithner was to debate the outlook for world economy after the Obama administration acknowledged that the eurozone slump is undermining American growth ahead of the November election.

The annual forum has been marked by gloom about the state of the global economy, and in particular about Europe's struggle to cope with yawning public deficits while at the same time seeking growth and jobs.

The euro has been under pressure -- amid fears that Greece or even eventually a giant like Spain or Italy could default on its debts -- and the 17-nation bloc's economy in on the brink of renewed recession.

A fortnight after France was stripped of its triple A credit rating, Finance Minister Francois Baroin will join his German counterpart Wolfgang Schaeuble in a debate entitled: "How will the eurozone emerge from the euro crisis?"

After the Friday the 13th downgrade by Standard and Poor's, Baroin said the development was "not a catastrophe" and insisted that the government rather than the ratings agencies would decide French policy.

But the Davos meeting has reverberated with calls for eurozone nations to act decisively to restore confidence, Canada's leader Stephen Harper said that Europe's capitals have been guilty of complacency.

British Prime Minister David Cameron also piled on the pressure, reviving his simmering feud with the rest of Europe on Thursday by savaging France and Germany's plans for a new financial transactions tax.

"Even to be considering this at a time when we are struggling to get our economies growing is quite simply madness," he declared.

The eurozone has caused alarm far beyond the continent and Mexican President Felipe Calderon used his speech Thursday to urge Europe to "bring out the bazooka immediately" to prevent the problem from sinking Italy and Spain.

"It is necessary to bring out the bazooka immediately, before the gunpowder gets wet," said Calderon, who holds the rotating chair of G20 world powers.

"Don't forget that we are in the same boat. It is not just a question of a possible implosion of the euro, but a crisis across the world."

Geithner's address comes a day after the Federal Reserve cut its US growth forecast to 2.2-2.7 percent, about one-quarter percentage point below the previous forecasts, citing the eurozone crisis.

"We continue to see headwinds coming from Europe," Fed chairman Ben Bernanke said at a news conference.

The third day of the Davos gathering also focused on events in the Middle East and North Africa, with an address from Hamadi Jebali, the post-revolution Islamist premier of Tunisia, and a debate on Iran's nuclear ambitions.

Jebali's appearance is designed to imbue a rare spirit of optimism but he will speak just as eyes will be turned towards the head of the UN's atomic watchdog as he discusses the implications of Iran acquiring a nuclear bomb.

International Atomic Energy Agency chief Yukiya Amano will be joined at the debate by Ehud Barak, the defence minister of Iran's arch foe Israel.

Copyright © 2012 AFP. All rights reserved.

Bank inches towards more QE as global risks loom

Bank inches towards more QE as global risks loom

The Bank of England inched towards pumping more money into the faltering economy in January as the risks from the global economy still loomed large, minutes to the Bank's January 11-12 meeting showed on Wednesday.

The Bank of England is seen against
a blue sky in the City of London October 6, 2011.
REUTERS/Suzanne Plunkett

The central bank's minutes repeated the view that inflation was set to fall sharply in the coming months, though tensions in the Middle East carried the risk of a sharp rise in oil prices.

The 9-member monetary policy committee also noted that some positive developments moderated some of the most serious risks, pointing to the European Central Bank's generous provision of long-term liquidity.

The MPC voted unanimously to hold the target for asset purchases steady at 275 billion pounds and the key interest rate at the record-low of 0.5 percent, where it has been since March 2009.

"For some members, the risks of undershooting the (inflation) target meant that a further expansion of asset purchases was likely to be required," the minutes said in a slightly more assertive tone than last month.

Britain's economy has been moving closer to recession over the past few months though some less downbeat business surveys and retailers' strong Christmas sales raised hopes that the country may avoid another slump.

The Bank reiterated the view that output was likely to be broadly stagnant in the final quarter of 2011 and the first three months of 2012.

Most economists expect the central bank to announce another 50 billion pounds cash injection for the economy in February as the government's hands are tied by its pledge to erase the country's huge budget deficit over the next five years.

Bank governor Mervyn King said in his first key note speech of the year that falling inflation is providing the scope for further quantitative asset purchases if necessary.

The policymakers judged that there was no compelling reason to think that the impact of the current bout of quantitative easing would be materially different from the first round, the minutes showed.

The minutes reiterated the Bank's forecast that inflation would fall sharply in the near-term as one-off effects such as last year's increase in sales tax fell away, though the policymakers also noted the uncertainty in the medium-term.

"There was greater uncertainty about the speed and extent of the fall in inflation thereafter," the minutes said.

Mervyn King predict lower inflation

Some members continued to argue that risks to inflation were overall more finely balanced and it was less clear that it would fall below the target in the medium term.

In particular Bank chief economist Spencer Dale has indicated that he would want to see clearer signs that inflation was coming down as expected before voting for further asset purchases.

Inflation has eased to 4.2 percent in December, down from the three-year high of 5.2 percent hit in September, though still more than twice the central bank's target.

The Bank forecast inflation to fall below 2 percent towards the end of this year. The Britain's large utility companies announced to cut gas and energy prices over the past couple of weeks.


©Reuters 2012

IMF Warns Debt-Crisis Inaction May Mean Steep EU Recession

IMF Warns Debt-Crisis Inaction 

May Mean Steep EU Recession.

The global economy is slowing this year, the International Monetary Fund said Tuesday, cutting its forecasts for growth and warning of a deeper downturn if Europe doesn't take stronger action to stem its debt crisis.

The global economy will expand 3.3%, this year, down from 3.8% last year, said the IMF, which in September had forecast 4% growth in 2012.

Europe is likely to experience at least a mild recession this year, but the outcome could be far worse if euro-zone leaders fail to halt the rise of state borrowing costs and growing squeeze on bank credit, the world's emergency lender said in an update of its World Economic Outlook. Inaction could cause the euro-zone economy to shrink by 4% on average in each of the next two years, and lop two percentage points off global output this year, the fund said.

The World Recovery is in danger of stalling - IMF Chief Economist Oliver Blanchard

"The world recovery, which was weak in the first place, is in danger of stalling," IMF chief economist Olivier Blanchard said. "But there is an even greater danger, namely that the European crisis intensifies. In this case, the world could be plunged into another recession," he said.

Funding costs for some of the region's biggest economies are hitting levels not seen since the launch of the European Economic and Monetary Union. Combined with thinning credit in financial markets and governments tightening their fiscal belts, Europe is likely to face at the very least a mild recession this year.

If Europe quickly follows IMF recommendations, the fund expects the euro area to face a 0.5% contraction this year. The fund shaved off 1.6 percentage points from its last forecast for 2012 in September--reflecting its worst-case scenario--after risks escalated sharply in the last quarter of the year, when the debt crisis "entered a perilous new phase." Under its optimistic scenario, the IMF expects growth to return to the region next year.

IMF warn that debt inaction may
result in a steep recession in the EU

Economists increasingly expect Greece to default within weeks. Even more worryingly, the markets are now targeting Spain and Italy, pushing up the cost for Rome and Madrid to borrow to cover the risk of default. The IMF slashed its 2012 forecasts for both countries, saying Italy faces a 2.2% contraction and Spain, a 1.7% fall. Both are expected to continue to be in recession through 2013.

The IMF praised the efforts of many euro-zone members to reduce their massive debt burdens and bloated budgets, but it warned against further near-term cuts that could worsen their economic woes.

"Given the large adjustment already in train this year, governments should avoid responding to any unexpected downturn in growth by further tightening policies," IMF staff said.

Advanced economies, including the U.S., Japan, the U.K and the euro zone, are expected to expand by only 1.5% on average through 2013, a growth rate too sluggish to make a major dent in high unemployment levels.

Growth in emerging and developing economies has slowed as European banks spend less abroad and euro-area demand contracts. The IMF forecasts those countries will expand as a bloc by 5.4% this year and 5.9% next year, shaving more than half a percentage point off their growth estimates. The fund lowered China's growth by nearly a percentage point to 8.2% for the year, down from a previous forecast of 9%.

But major emerging economies face a risk of a major shock to growth. Should real estate and credit markets unwind, "the impact on economic activity could be very damaging," the IMF said.

Overall, the IMF sees global growth slowing but not collapsing, and many advanced economies avoiding a second recession.

The European Stability Fund

"However, this is predicated on the assumption that in the euro area, policy makers intensify efforts to address the crisis," the IMF said.

The IMF wants the euro zone to double the size of its emergency bailout fund, called the European Financial Stability Fund, which it said Tuesday wasn't big enough to address any new major debt emergency. 


The fund said that financing for the bailout fund is in question following its rating downgrade and the higher cost of financing it.

It is also urging the Group of 20 industrial and developing countries to boost the IMF's lending resources to more than $1 trillion. 


That way, Europe could use its bailout fund to help boost banks' cash levels and keep its euro-zone financing costs down while the IMF helps bail out ailing economies. The fund also wants the European Central Bank to continue its bond-buying program, maintain ample credit in the financial system and ease policy interest rates.

However, there are major political hurdles for Europe to follow through on the IMF's recommendations. In particular, Germany has so far resisted bulking up the bailout fund beyond what has already been promised and the ECB has publicly rejected a bailout role.

The IMF also reiterated its concerns that the U.S. and Japan hadn't made enough progress developing a medium-term plan to slim their budgets and pay down massive debt overhangs. In the absence of action, "there is the possibility of turmoil in global bond and currency markets," it said.

-By Ian Talley, Dow Jones Newswires
Edited by PoliticsUK

Greece 'Names And Shames' Top Tax Dodgers

Debt-laden Greece has released a list of 4,000 of the country's biggest tax dodgers as part of a name-and-shame policy to get evaders to pay up.

A famous singer, retired basketball star and former media magnate are among those on the list published by the Greek government.

The debts listed total almost £13bn, with the worst offender owing the state nearly £8.4m.

Tax evasion is endemic in Greece and its international lenders, the EU and the IMF, have insisted that Athens improve its tax collection if they are to continue bankrolling the debt-crippled country.

Greece has about £50bn in unpaid taxes, a figure equivalent to about a quarter of its economy, according to an EU report published in November.

The 'name and shame' list came as EU finance ministers met to discuss the ongoing crisis in Greece and the rest of the eurozone.

The Institute of International Finance (IIF) , which represents Greece's creditors, is also holding a press conference on Tuesday ahead of this week's World Economic Forum in Davos.

The Greek tax evader list includes veteran singer Tolis Voskopoulos, former basketball player Michael Misounof and a whole host of business tycoons.

At the top is a 58-year-old accountant who is currently serving a 504-year prison sentence for tax fraud. He allegedly owes £794m, most of which is in surcharges and fines.

With many other tax dodgers on the list also in prison or bankrupt, Greece's finance ministry acknowledged that it would be extremely hard to collect many of the outstanding debts.

Finance ministry official Haris Theocharis said: "The truth is that these lists contain debtors who in some cases have owed the money for a long period of time, so after a certain point one does not expect to be able to collect the debts.

"But I'm sure that there are possibilities ... In some cases (publication) will push debtors to settle their debts, and tax offices to redouble their efforts."

Greece 'Names And
Shames' Top Tax Dodgers

Despite repeated pledges over the past two years, Greek officials have failed to make progress in collecting outstanding debts.

Little more than a tenth of the £50bn owed in tax is seen as collectible.

Greece's 2011 budget deficit is expected to be around £16.5bn. This compares to an annual gross domestic product of about £182bn.

The Greek government has acknowledged the grave shortcomings of its tax service, even admitting that a hugely unpopular new property tax, under which non-paying households will have their electricity cut off, might not have been imposed if the tax collection system was more efficient.

©Sky News

Pressure grows over RBS bonuses

Deputy Prime Minister Nick Clegg has insisted there should be no big, million pound-plus bonus payout for the boss of the mainly state-owned Royal Bank of Scotland.

Mr Clegg dismissed reports that RBS chief executive Stephen Hester was in line for an award of £1.5 million or more as "pure speculation".

"You are asking me about a hypothetical outcome that I don't believe will arise," he told BBC1's The Andrew Marr Show.

Royal Bank of Scotland chief executive Stephen Hester
received a two million pound bonus last year

He said the Government's ability to influence bonus payments at RBS - which is 83%-owned by the taxpayer - was "constrained" as a result of contractual arrangements entered into by the last Labour government.

However he made clear that ministers expected the overall bonus pool at the bank to be "considerably lower" than it was last year.

"We have been very, very clear that in RBS - and for that matter in other banks - the bonus pool has got to be considerably lower than it was last year," he told BBC1's The Andrew Marr Show.

"The Bank of England, the Financial Services Authority, are saying exactly the same thing because any money that is spare should be where possible be used to repair the banks' balance sheets."

Mr Clegg stressed no decisions had been taken yet on the bonuses at RBS. But after David Cameron said last week that Mr Hester's bonus would be "a lot less" than the £2 million award he received last year, Labour leader Ed Miliband said the Prime Minister had to ensure the awards were kept in check.

And Mr Miliband later went further, calling for Mr Hester to be stripped of his bonus altogether. "Taxpayers are still footing the bill for what's happening at the Royal Bank of Scotland," he told BBC Radio 5 Live's Pienaar's Politics.

"If responsibility means anything I don't think he should be getting his bonus. And the Prime Minister, if he's true to his word, would exercise his responsibility to do something about that."

Lansley defends health Bill plans

Health Secretary Andrew Lansley has defended the Government's controversial health Bill after the main medical unions became the latest bodies to declare all-out opposition to the reforms.

The Royal College of Nursing (RCN) and the Royal College of Midwives (RCM) have called for the Bill to be scrapped. It follows a move by the British Medical Association (BMA) in December to also fully oppose the Health and Social Care Bill, currently going through Parliament.

The RCN, the biggest nursing union, said "serious concerns" have not been addressed during the parliamentary process, listening exercise or political engagement and the Bill will not deliver on the principles originally set out.

Recent announcements such as the rise in the cap on private patients being treated in NHS hospitals to almost half (49%) "make the Bill in its entirety a serious threat to the NHS", it said.

But Mr Lansley backed the reforms, saying the opposition to the Bill was more about issues of pay and pensions. He said the legislation was "essential in order to give nurses and doctors clinical leadership".

The leading medical unions have declared their
opposition to the proposed NHS reforms

"I'm afraid the only thing that has happened in the last few weeks that has led to this situation with the Royal College of Nursing is that the two sides of the Royal College of Nursing have shifted," Mr Lansley said.

"There used to be a professional association that was working with us on professional issues and will carry on doing that, but now the trade union aspect of the Royal College of Nursing has come to the fore, they want to have a go at the Government - I completely understand it - but they want to have a go about things like pay and pensions.

"The Bill actually enables the NHS to deliver efficiency savings and improve performance - not least because actually the Bill is part of the process of cutting administration in the NHS. It takes about £1.5 billion a year out of NHS administration costs because it reduces that superstructure of bureaucracy in the NHS - over the course of this Parliament it will deliver over £4 billion savings itself.

"Through the NHS Future Forum we have been out there, making sure, and doing it ourselves time and again, that we're taking staff with us in terms of understanding these issues. And the RCN and the RCM are very clear that they support the principles of the Bill. What they are actually unhappy about is pay, pensions and jobs. I complete understand that.

"But if there were no Bill the same issues would have to be addressed. We inherited a deficit, we are having to manage the NHS within limited increases, but actually next year the NHS budget is going to go up by 2.8%."

©Press Association

Jobless total hits 17-year high

Unemployment reached a 17-year high today after a 118,000 increase in the jobless total, which saw a record number of young people out of work.

The figure jumped to 2.68 million in the three months to November, the worst since the summer of 1994, giving the UK a jobless rate of 8.4%.

The number of unemployed 16 to 24-year-olds increased by 52,000 over the quarter to 1.04 million, the highest since records began in 1992.

And the number of people claiming jobseeker’s allowance in December increased by 1,200 to 1.6 million, the highest for a year after the 10th consecutive monthly rise.

Other figures showed that almost a million working days were lost in November as a result of the public sector pensions strike, the highest figure since 1989.

The Office for National Statistics reported that the number of people in full-time employment fell by 57,000 in the latest three months, but there was a 75,000 increase in part-time workers.

There was a 44,000 rise in the number of people working part-time or for themselves because they could not find a full-time job, taking the total to 1.3 million, the highest since comparable records began in 1992.

Employment increased by 18,000 to 29.12 million, while the number of people classed as economically inactive fell by 61,000 to 9.29 million, a rate of 23.1%.

The fall was mainly due to fewer women looking after a family or home, and fewer retired people under the age of 65.

Unemployment increased evenly among men and women in the latest quarter, while the number of people out of work for longer than two years increased by 1,000 to 424,000.

There was a 10,000 fall in the number out of work for more than a year to 857,000.

Average earnings increased by 1.9% in the year to November, down by 0.2 percentage points on the previous month.

John Salt, director at recruitment firm totaljobs.com, said: “Whether or not the UK is technically in recession, for those out of work the situation is already dire enough.

“Today’s figures merely confirm what our barometer has been telling us for three months now, that applications per job are at an all-time high of 23, with not enough growth in the labour market to absorb the numbers being laid off. What’s more, the signs for 2012 just aren’t good.

“The eurozone crisis threatens not only jobs reliant on exports but also in the financial services industries. With retail already struggling following a lacklustre Christmas, it is difficult to see sectors in which we’re going to see significant increases in available jobs.”

Paul Kenny, general secretary of the GMB union, said: “This rise in unemployment was made in Downing Street. The truth is that jobs are haemorrhaging in the public and private sectors and no one in the Government seems to know what to do to stop this.

“There are parts of the country in such despair that more than a quarter of households with people of working age have no one in work.

“The number one political priority has to be securing a reduction in unemployment.”

Employment Minister Chris Grayling said: “The overall level of unemployment is, and will remain, a major concern for the Government.

“The latest figures reflect the current challenging economic climate but also show more women entering the workforce and more students looking to supplement their income through work.

“When you take into account our welfare reforms, the number of jobseeker allowance claimants has actually fallen.

“Despite the exceptionally difficult economic circumstances, finding work for the unemployed will remain top of the Government’s agenda.”

Chancellor 'confident' on economy

Chancellor George Osborne has insisted the Government was doing everything possible to "weather the storm" as economic forecasters warned the UK is likely to be already in recession.

The Ernst & Young ITEM Club and the Centre for Economics and Business Research both believe that gross domestic product (GDP) shrank in the final quarter of last year and will fall again in the first three months of 2012. A recession is defined as two consecutive quarters of contracting output.

Mr Osborne said the most recent predictions by the Office for Budget Responsibility, which issues official forecasts, showed that Britain would have a negative quarter of growth but not go into recession.

He told BBC Radio 4's Today programme: "That's their forecast, but they were the first to say that it is very uncertain and one of the biggest risks to the British economy is the further deterioration of the eurozone crisis.

The Government is doing everything it can to deal with the economic crisis, Chancellor George Osborne has said

"I said openly at the end of November to the House of Commons when I made my autumn statement that if the eurozone were to go into a deep recession, that would have a real impact on the British economy.

"I'm confident the British Government is doing everything it can with a very difficult inheritance, facing a very difficult international situation to get Britain through this, to weather the storm."

The warnings come shortly after France, the second biggest economy in the eurozone, saw its AAA credit rating downgraded by Standard & Poor's in a move which signals more troubles for the single currency bloc.

Professor Peter Spencer, chief economic adviser to the Ernst & Young ITEM Club, said: "Figures for the last quarter of 2011 and the first quarter of this year are likely to show that we are back in recession and we are going to have to wait until this summer before there are any signs of improvement. But it's not going to be a repeat of 2009 - we are not going to see a serious double dip."

The ITEM Club report forecasts GDP growth of just 0.2% this year before increasing to 1.8% in 2013 and 2.8% in 2014. It said deteriorating levels of confidence will see business investment stagnate in 2012, while export prospects have already slowed.

But the group said UK companies have stronger balance sheets than in 2009 and have built up large cash stockpiles, which will provide a useful insurance policy if the situation deteriorates further.

©Press Association