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Unemployment will rise throughout next year as businesses fail to offset tens of thousands of job losses across the public sector, analysts have warned. Economists fear that there will also be job cuts at companies that supply the state, while the Vat and other tax rises in the New year will make companies increasingly reluctant to hire.

Expectations of a jump in unemployment during 2011 follow strong job creation this year in the private sector. The number of people in work soared by 286,000 in the three months to July. However, Ross Walker at RBS said that he expects 60,000 fewer people to be in work by the end of 2011. “The unemployment rate is expected to rise throughout 2011, reflecting a combination of public sector layouts and sluggish private sector jobs growth, which will fail to keep pace with the growth of the labour market,” he said.

Howard Archer at IHS Global Insight said: “We suspect unemployment is heading up in 2011 as a consequence of slower, rising business caution and public sector jobs being pared[back].