Unemployment in Britain jumped to its highest level since 1994 with young people particularly hard hit as private companies failed to make up for job losses in the public sector, piling pressure on the government to boost a stagnant economy.

Deep cuts in state spending will mean more than 300,000 public sector jobs are shed in coming years, while the economy has barely grown over the past year as consumers cut back spending and key export markets are slowing, particularly in Europe.

“The figures are a disaster,” said economist Alan Clarke of Scotia Capital.

The data “shouldn’t come as a surprise because the economy is growing at half the pace it needs to keep unemployment stable. That’s not going to change any time soon, so we should get used to numbers like this,” he added.

The number of Britons claiming unemployment benefit rose by 17,500 in September, official data showed on Wednesday. Analysts had forecast a rise of 25,000.

ILO data showed youth unemployment at its highest since records began in 1992, driving the jobless rate among eligible 16- to 24-year-olds to 21.3 per cent in the three months to August 2011, up 1.6 percentage points from the three months to May 2011.

The Office for National Statistics said the number of people without a job on the wider ILO measure jumped by 114,000 in the three months to August to 2.57 million, the highest total since October 1994.

The jobless rate ticked up to 8.1 per cent, the highest since October 1996, compared with forecasts for a reading of 8.0 per cent.

Employment Minister Chris Grayling agreed that the figures were “not at all positive.”

“What we’re now seeing, I’m afraid, is the impact of the international financial crisis, the troubles in the euro zone on the economy in this country,” he told the BBC.

Unions were quick to condemn the figures.

“The Tories’ and Lib Dems’ big gamble that private sector growth would create enough jobs to compensate for their cuts in public sector jobs has not come off as the rise to 2.57 million without jobs shows,” said Paul Kenny, General Secretary of Britain’s GMB union, the country’s third largest.

“In the middle of the worst international recession for 80 years the Government itself is creating unemployment with 250,000 public sector posts already gone and still more to come. Government policy is hurting but it’s not working.”

The Bank of England launched a fresh round of stimulus last week, pumping an additional 75 billion pounds into the economy in order to prevent a renewed recession. BoE economist Spencer Dale told Reuters in an interview the economy was likely to weaken further in the final quarter of this year.

The ONS said pay increases slowed in the three months to August, in a sign that wages were unlikely to fuel inflation.

Average weekly earnings including bonuses grew by 2.8 per cent. Analysts had forecast a rise of 2.9 per cent. Excluding bonuses, earnings rose only 1.8 per cent, below analysts’ forecasts of 2.0 per cent.