The Government has been urged to announce measures aimed at helping firms create jobs, ahead of new unemployment figures expected to show another increase in the jobless total.
Unemployment increased by 49,000 in the quarter to November to 2.5 million, with a record number of 16 to 24-year-olds out of work, leaving analysts predicting lengthening dole queues.
The Federation of Small Businesses (FSB) called on the Government to extend the national insurance contributions holiday from new businesses to existing firms.
The federation said the number of companies looking to recruit new staff has fallen in recent months, while more fear they will have to make redundancies.
FSB chairman John Walker said: "Unemployment is worryingly high and with inflation above target, small firms cannot rely solely on the consumer for growth.
"Government must give a helping hand to small firms and create an environment that helps small businesses grow and develop. While they have gone some way in helping new businesses take on new staff, it needs to go further.
"We know that small firms would take on more staff if national insurance was cut, so to really help boost employment in small businesses, the Government must extend the national insurance contributions holiday to existing small firms.
"As we have heard time and again, the Government is looking to the private sector to lead the recovery, but without the right measures in place, small firms are left without the tools they need for the job at hand."
Sean Howard, of people management firm SHL, said the jobs market was "bleak", with the record number of young people looking for work likely to get worse because of higher education fees making university an "increasingly unattractive" option for school leavers.
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The number of unemployed 16 to 24-year-olds increased by 32,000 to 951,000 in the quarter to November, the highest since records began in 1992.
