The pan-European FSTEurofirst 300 index of top shares was also down 0.1 per cent at 715.48 points by 0941 GMT on Wednesday, after being up to 725.29 points earlier in the day.

Grim predictions

Howard Archer, a European economist at IHS Global Insight, a financial forecaster, said the unemployment figures could increase fears about the "potential depth and length of the recession".

"Unemployment smashed through the two million barrier with ease ... and it seems set to head up towards three million pretty rapidly over the coming months as the economy contracts sharply and struggling businesses look to contain their costs," he said.

The International Monetary Fund (IMF) has forecast that the British economy will contract by 3.8 per cent this year, and shrink a further 0.2 per cent in 2010.

It said unemployment is also likely to rise further.

David Blanchflower, a policymaker at the Bank of England, believes the jobless rate could climb up to 10 per cent by the end of the year.

The central bank has attempted to alleviate the effects of the recession by slashing interest rates to a record low of 0.5 per cent.