Analysts at two organisations have warned that a huge “second wave” of public-sector redundancies threatens to extinguish any near-term economic recovery.

In their latest Labour Market Outlook, the Chartered Institute of Personnel and Development (CIPD) and accountants KPMG say that the pace of deterioration in UK job prospects is starting to slow this summer, as private-sector demand for staff begins to stabilise following the surge of redundancies earlier in the year.

However, signs of improved employer optimism in the private sector are being offset by mounting pessimism in the public sector. They also caution that there could be a further round of redundancies in the private sector if company profits “continue to be squeezed by fast-rising unit labour costs”.

John Philpott, chief economist at the CIPD, said: “Employment will keep falling and unemployment is still on course to top 3 million people during 2010.

“While pay restraint or cuts in hours of work has helped save many jobs that might otherwise have been lost during the recession, holding onto staff when order books are far from healthy pushes up unit labour costs and eats into company profits.

“This can't be sustained indefinitely — a weak economic recovery, let alone a double-dip recession, might well cause many employers to reassess current staffing levels before too long.”