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Unemployment will increase to a 17-year high of 2.7 million in 2011, a leading business group says.

The Chartered Institute of Personnel and Development (CIPD) said 9% of those eligible to work would be unemployed, up from the current level of 7.9%.

Their forecast is considerably gloomier than that of the independent Office for Budgetary Responsibility.

The CIPD estimates 120,000 jobs will go in the public sector and another 80,000 among private firms.

Doldrums

John Philpott, chief economic adviser to the CIPD, said it was a case of "fingers crossed" for 2011.

"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," he added.

"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."

The CIPD, which also predicts average earnings to rise by 2% over the coming 12 months, warned of the likelihood of industrial disputes and discontent on the streets as a result of the government's tough austerity measures.

"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", Mr Philpott said.

"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."

In December 2010, unemployment stood at 2.45 million, according to official figures.