By Alex Stevenson Follow @alex__stevenson
One million young people out of work have pushed the overall number of unemployed up to its highest level for 17 years.
There are now 2.62 million people out of work - an increase of 129,000 on the previous three months which takes the total to its highest since 1994.
Bleak economic prospects for growth, which the Bank of England today said was not expected to return until the middle of 2012, have triggered another bout of angry opposition from those fighting the government's spending cuts agenda.
Employment minister Chris Grayling blamed the setback on the eurozone crisis, which he said had depressed business confidence.
"People are holding back because they are uncertain about the future," he claimed. "That's why we so urgently need the eurozone to sort out its problems.
"We are not immune from the very difficult times which are affecting the whole of Europe, and are affecting the whole of the developed world, frankly."
His claim was backed up by Bank of England governor Mervyn King, who said the eurozone was adding to the "headwinds" already faced by spending cuts.
But Nigel Meager, director of the Institute for Employment Studies, said the labour market had been "in the doldrums" long before the eurozone emerged as a problem.
"While it may be tempting to blame the latest poor labour market figures on the eurozone crisis, there is no evidence whatsoever for such a conclusion," he insisted.
"What is true, however, is that the eurozone problems are likely to reduce the chances of an early labour market recovery.
"The risk is that their impact on business confidence will further reduce demand from private sector employers, at the same time as the public sector jobs cuts really begin to bite."
'Lost generation' feared
The Office for National Statistics (ONS) said the unemployment rate had increased to 8.3% in the three months from July to September, from 7.9% in the previous three months.
Sixteen- to 24-year-olds made up the bulk of the increase, with 64,000 more young people classified as 'economically inactive'.
The total unemployment rate for young people broke through the one million barrier in September, prompting organisations from both left and right to call for instant action.
The CBI called on chancellor George Osborne to use his autumn statement to announce a 'young Britain' credit which would encourage firms to take on young people.
"We also need further steps to reform the benefits system to make work really pay and to foster better links between businesses and schools to boost the attractiveness of young people in the labour market," director-general John Cridland said.
Unite general secretary Len McCluskey went further, saying ministers needed to create a "land bridge of opportunity" for young people.
Pointing out that Britain's youth unemployment rate is now twice that of Germany, he added: "It is not only a personal tragedy for the young people concerned, but it is also a waste of talent and potential, so necessary for economic growth, and is sowing the seeds for a whole raft of future social problems."
Mr Grayling said the one million figure was a "distraction", as it included 300,000 in full-time education.
But he acknowledged that youth unemployment was "one of our big challenges".
The government is launching a new enterprise allowance which gives out-of-work people the opportunity to move into self-employment.
But the figures are more bad news for the coalition government, as Britain's economy continues its protracted, limited recovery from recession.
Bleak prospects for recovery
Britain's 'misery index' saw the unemployment rise offset by a slight fall in inflation, according to analysis firm Markit.
Its chief economist Chris Williamson said further expected decelerations in inflation could improve the situation, but noted that further rises in unemployment could easily cancel these out, too.
The jobless problem is set to get worse, as recruitment agencies are reporting a fall in demand for permanent staff for the first time since July 2009.
"The drop in demand represents a worrying contrast the strong growth of employment seen earlier in the year and highlights an increasing reluctance among companies to take on staff on the face of growing economic uncertainty at home and abroad," Mr Williamson explained.
"As such, it seems unlikely that the private sector will make up for job losses in the public sector, meaning unemployment looks set to stay high for some time to come, and possibly rise further."
The Bank of England's quarterly inflation report predicted that Britain's economy would see broadly flat growth until the middle of next year.
"We continue to face a difficult economic environment," Mr King said at the report's launch this morning.
He said there was a "great deal of uncertainty" surrounding inflation in the medium term. Mr King also warned that the UK economy was in a position "where rebalancing and recovery could go hand in hand", but only if the eurozone crisis did not prevent growth.
The Unite union has demanded a 'plan B' aimed at boosting manufacturing and putting demand back into the UK economy, by maintaining the current level of public services and cutting the 20% VAT rate.
The University and College union said the youth unemployment figures made a strong case for abandoning increases in tuition fees. General secretary Sally Hunt said policies should be introduced to encourage students to "get on", rather than "erecting financial barriers to education".
And Labour continued its uncompromising attack on the government's spending cuts agenda, as it claimed the austerity agenda was "just not working".
"Today the government have been given a million reasons to change course on the economy," shadow work and pensions secretary Liam Byrne said.
"Our country has not confronted youth unemployment on this scale since records began. And since January there has been an 83% rise in young people on the dole for six months or more.
"The news that a million young people are standing idle must shock this out of touch prime minister into an economic rethink, and fast."
Meanwhile, ONS figures showed overall pay levels including bonuses saw an increase of 2.3% on one year earlier, down 0.4% on the three months to August 2011. But without bonuses regular pay rose by 1.7%, down 0.1%.