UK unemployment rose by 38,000 in the three months to April as companies hit by the credit crunch began laying off staff, figures from the Office for National Statistics revealed.

The rise took the rate of unemployment from 5.2% to 5.3% of the population, with a total of 1.64m now out of work.

But the rate of wage inflation slowed to 3.8% from the previous quarter's total of 4%, surprising many analysts who had expected rising fuel and food prices would have filtered through into wage increases.

The news will calm fears that the Bank of England could be forced to raise interest rates in a bid to get inflation back under control. It currently stands at 3%, well above the government's target of 2%.