There has been a sharp increase in the projected number of public-sector job losses to be made in the next five years, according to a forecast from the Office for Budget Responsibility (OBR).

The forecast, released to coincide with the chancellor’s Autumn statement, showed that 710,000 public-sector posts will be lost by 2017, a marked increase from the OBR’s previous prediction of 400,000 by 2016. The OBR expects unemployment to peak at 2.8 million by the end of the next year and remain over that figure for the next three or four years. This prediction sits alongside gloomy growth forecasts from the OBR: growth is expected to be just 0.9 per cent for 2011 and 0.7 per cent in 2012, a significant downwards revision from previous estimates.

“The Chancellor will have to acknowledge that this is the price of sticking with his fiscal Plan A, and things could yet turn out to be worse if the situation in the eurozone deteriorates further,” said John Philpott, chief economic adviser to the CIPD.

“Encouragingly, and also in keeping with the CIPD’s view, the OBR concludes that there is little evidence of a permanent structural deterioration in the labour market and that the structural unemployment rate is around 5.35 per cent. This is good news in that it suggests that unemployment can fall quite rapidly once the economy returns to a strong rate of growth, which incidentally implicitly undermines the Chancellor’s argument that the UK needs a major dose of employment deregulation to stimulate job creation,” said Philpott.

“The bad news, however, is that with economic growth remaining sluggish for some time to come the OBR expects unemployment to remain above 2 million until the middle of the decade, which will put downward pressure on earnings growth across all sectors of the economy for several years to come.”