Unemployment soared and markets plummeted yesterday as the world’s biggest economies braced themselves for a prolonged recession.

The number of people out of work in Britain will rise to three million within two years, economists forecast, as unemployment surged at its fastest rate for 17 years. David Blanchflower, a member of the Bank of England’s rate-setting committee, said that the figure could exceed two million by Christmas.

In the United States, retail sales suffered their worst fall since 1992, plunging at twice the rate that analysts had expected, while one of the world’s biggest miners called time on the Chinese economic boom, sending global stock markets tumbling.

Shares on Wall Street fell 733 points, or 8 per cent. The bounce on Monday that greeted the co-ordinated bank bailout has now been all but erased, amid fears that the measures will fail to avert a global slump.

Ben Bernanke, Chairman of the US Federal Reserve, helped to unnerve the markets when he warned Americans that there would be no quick fix for their ailing economy.

Fears about rising unemployment spread across Europe. The FTSE 100 index fell 314 points, or 7 per cent, to 4,079. The Dax in Frankfurt was down more than 6 per cent and shares in Paris also fell, by almost 7 per cent.

Many of the casualties were miners, industrial groups and oil companies that provide the nuts and bolts of the global economy. They suffered after Rio Tinto, one of the world’s leading mining groups, gave warning of falling demand for metal from China’s mills and factories — a grim forecast of a near-certain global recession.

Oil fell yesterday below $75 a barrel to its lowest level this year, amid concerns that demand would dry up as the recession begins to bite.

The signal from Rio confirmed the worst fears of investors that the credit crisis would spread not just to the economies of Europe and America but also to the Far East, which has been underpinning global demand for raw materials.

In Britain, in the three months to August, the number of people out of work rose by 164,000 to 1.79 million on the Government’s preferred Labour Force Survey gauge. The jump came as a stark warning to Gordon Brown that, despite international praise for the bank bailout plan, clear signs of recession are now emerging.

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