The number of people of out of work rose by 81,000 to a nine-year high in August as the rate of Britons claiming unemployment benefits surged at the fastest rate since the UK's last recession.

Some 32,500 people signed on for jobless benefits during August, official figures showed today, signalling the largest increase since 1992.

Unemployment also rose, reaching 1.72 million people but business organisations said numbers could rise as high as two million by the end of next year to levels not seen since Labour came to power in 1997.

The CBI, the employers' group, said that the number of people out of work could rise by 450,000 by the end of the next year, while the Trades Union Congress said that the number of people out of work for more than a year could surge by 700,000.

Today's figures will add to Prime Minister Gordon Brown's mounting problems as he grapples to maintain control after a second minister quit yesterday while battling to keep a grip on Britain's slowing economy.

Figures also showed today that number of people in employment also fell for the first time in nearly two years as the deteriorating economic conditions took their toll.

Earlier this week 5,000 City workers lost their jobs as Lehman Brothers, once America's fourth largest investment bank, filed for bankruptcy.

Howard Archer, chief UK and of Global Insight, the economic consultancy, said: "It seems inevitable that very weak economic activity and deteriorating business confidence will exact an increasing toll on the labour market over the coming months."

The rise in both unemployment and benefit claimants will come as disturbing news for the Bank of England, which is hampered from cutting interest rates to shore up the economy by soaring inflation, which rose to a 16-year high of 4.7 per cent last month.

The increasing number of people losing their jobs will also raise fears over the future of house prices, which have tumbled by more than 10 per cent since last summer, according to Halifax.

People who can no longer keep up with their mortgage repayments will be forced to accept low offers for their property, dragging house prices down further.

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