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Unemployment 'to hit 2.7m in 2011'

Unemployment will increase to 2.7 million and average earnings will rise by a below-inflation 2% next year, a leading business group has predicted.

The Chartered Institute of Personnel and Development (CIPD) said the jobless rate will reach 9% in 2011, with public sector employment set to fall by 120,000 and private sector jobs cut by 80,000.

The group forecast that the number of people in work will fall by 200,000 next year.

John Philpott, chief economic adviser to the CIPD, said 2011 will be a "fingers crossed" year for the economy and jobs.

"If all goes well and the unexpectedly strong progress made in 2010 is sustained, the jobs market will be able to cope with the impact of the coalition government's spending cuts and tax increases without any significant rise in unemployment.

"However, things only have to turn out a bit worse than expected in the wider economy for the jobs situation to weaken, which remains the CIPD's central forecast. Either way, this doesn't mean that we are facing a return to the dire recession days of late 2008 and 2009, but nonetheless 2011 will probably feel like another year in the economic doldrums, rather than the start of a return to prosperity.

"Even if 2011 turns out to be a jobs-light, rather than jobs-loss or jobs-standstill year, the chances are that the bulk of any new private sector jobs will continue to reflect the experience of 2010, with part-time and temporary jobs in the majority.

"Moreover, most workers will feel a squeeze in their real living standards, with pay rises still relatively modest against a backdrop of higher prices for many essential products and services and higher taxes."

The report warned that the Government's austerity measures could spark employment disputes and social discontent, adding that 2011 could prove to be a "troubled year all round".