The country's unemployment rate held at a 13-year high in the three months to January and the youth unemployment rate rose to a record high, piling pressure on the government to introduce policies to boost growth and jobs in next week's budget.

Unemployment on the broader ILO measure inched down to 2.666 million for the November-January period from 2.671 million in the three months to December, but the overall rate held at 8.4 percent, the highest since late 1995.

Other figures released on Wednesday showed an unexpected slowdown in wage growth further squeezing household budgets with inflation still well above the central bank's 2-percent target.

Economists welcomed signs of stabilisation in the labour market as an indicator Britain looks likely to avoid a return to recession, but they warned that the recovery from the contraction in the final quarter of 2011 remained fragile.

Some forecasters had predicted that unemployment may hit the politically charged 3-million mark, taking the unemployment rate above 9 percent.

Risks to the economy remain, although arguably they have lessened over the past three months, said Philip Shaw, economist at Investec.

Unemployment does not appear to be set to reach the heights that were feared at the end of last year. At the same time, without a strong rebound in growth it is hard to see this high level of unemployment coming down materially anytime soon.

By the government's own measure, the number of people claiming jobless benefit rose by 7,200 to 1.612 million in February, Office for National Statistics data showed. That was slightly above economists' forecasts and the highest since November 2009.

MEAGRE WAGE GROWTH

Worries about job security have been weighing on consumers' morale, but the government and the Bank of England are hoping that falling inflation will allow British consumers to increase spending this year, supporting the fledgling recovery.

However, data on average weekly earnings, including bonuses, showed growth easing to 1.4 percent in the three months to January - the slowest pace in two years and below expectations for a rise of 1.9 percent. Excluding bonuses, wages grew by 1.7 percent, also well below inflation of 3.6 percent in January.

Unions put part of the blame for high unemployment on the government and called on finance minister George Osborne to do more to help those out of work in his 2012/2013 budget speech next Wednesday.

These figures show that the UK economy is in a hole being dug deeper by the deflationary policies which derailed the recovery the government inherited, said GMB General Secretary Paul Kenny.

The budget next week is an opportunity for Mr Osborne to stop digging and it must not be missed.

Osborne, however, is all but certain to stick to his five-year austerity programme, which aims to largely eliminate Britain's huge budget deficit.

A major plank of this involves reducing the level of public sector employment by an estimated 700,000 in the hope that the private sector will take up the slack.

Separate ONS figures released on Wednesday showed that this was proving partially successful. Public sector employment in the fourth quarter fell by 37,000 to 5.942 million, its lowest since June 2003. Total public sector employment is 270,000 lower than a year earlier, compared to a 226,000 increase in private sector jobs in the fourth quarter last year versus a year earlier.

YOUNG AND JOBLESS

The politically sensitive number of young people without a job rose to 1.042 million in the three months to January, taking the unemployment rate for 16 to 24 year olds to 22.5 percent, the highest since records began in 1992.

The number of young, genuinely unemployed people has stabilised and the number of young people on jobseeker's allowance has actually come down this month, Employment Minister Chris Grayling told BBC television.

There has been mixed news on British jobs in recent days.

On Tuesday Lloyds and Royal Bank of Scotland announced 1,900 layoffs between them, while car maker Jaguar Land Rover said it would create 1,000 new positions in Britain and last week supermarket chain Tesco said it would hire 20,000 staff.

In addition, a survey by recruitment firm Manpower showed on Tuesday that British employers plan to expand their workforces at the fastest pace since the third quarter of 2011, after a hiring lull in the first three months of this year.

(Additional reporting by the London bureau; Editing by Ben Harding)