Britain will be hit with rising unemployment next year as its economic recovery is held back by eurozone woes, spending cuts and the global slowdown, a respected think-tank warned.
The Paris-based Organisation for Economic Co-operation and Development (OECD) said UK firms may put hiring on hold amid a subdued and uncertain recovery.
While it said the economy will shrink by a lower-than-feared 0.1% this year - a marked improvement on the 0.7% contraction it predicted in September - it added there were major headwinds facing the UK from the wider global economy.
In its half-yearly forecast, the group said: "Although employment grew strongly in 2012, unemployment is expected to rise slightly in 2013, as the subdued recovery and continued uncertainty may make firms hesitant to hire," although it expects the UK economy to grow by 0.9% in 2012, rising to 1.6% in 2014.
The OECD added Chancellor George Osborne should push back his debt reduction target if growth proves slower than expected, believing the Bank of England should continue with its economy-boosting quantitative easing (QE) programme, which is "providing significant support".
Its comments come amid mounting speculation over whether QE will be extended beyond £375 billion following comments from Bank policymakers suggesting current conditions mean it is having little further impact.
In its global forecasts, the OECD said the world's economic recovery will be "hesitant and uneven" next year and warned the risk of a deep recession cannot be ruled out, and it expects the 17-country eurozone to struggle further in 2013 despite recent positive steps to stabilise the crisis.
It forecasts a 0.4% contraction this year in the eurozone and a 0.1% fall next year, a 2% growth in the US economy next year, and growth across the OECD nations is expected to grow by 1.4% this year and next.
Angel Gurria, secretary general of the OECD, said: "The world economy is far from being out of the woods.
"The US 'fiscal cliff', if it materialises, could tip an already weak economy into recession, while failure to solve the euro area crisis could lead to a major financial shock and global downturn."
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