The sharp rise in unemployment comes as the City watches with bated breath to see if HBOS and Lloyds TSB are set to merge. If they do, it is likely that the job losses resulting from the deal could put the 5,000 jobs losses at Lehman Brothers earlier this week in the shade.

Today's figures from the Office for National Statistics, which show the biggest jump in claimants since the last recession, only reflect the number of people signing on for unemployment benefits in August, while the ILO measure of unemployment reflects the three months to the end of July so, as the most recent job losses in the City and elsewhere in the country filter through, these figures are set to rise further. Even Paul Tucker, a member of the Bank of England's rate-setting committee, gave warning that unemployment could soar by 30,000 a month, especially from October when school leavers start to register for benefits.

This evidence that the economic turmoil is beginning to bite workers across Britain will not only make grim news for the Bank, but also for the Government. There is every chance that unemployment could rise to more than 2 million before next year's election, taking the jobless rate to the same level as when Labour came to power in 1997 — doling out another blow to the already beleaguered Labour party.

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