The Financial Services Authority has acknowledged the possibility of unemployment rising to 3.7m within the next two years.
The FSA revealed the scenario last week as part of its ‘stress test’ to see whether banks could withstand the recession. The setting under which banks were tested assumed unemployment would peak at 12% with no growth in the economy until 2011 at the earliest.
The stress-tests were applied to the Royal Bank of Scotland and Lloyds Banking Group as a condition of their participation in the government’s asset protection scheme, under which the state has insured banks against losses.
The results will not be published. The scenario used in the stress-test is not a forecast, but a possibility that my be brought about by a worsening of the recession, the FSA said.