Labour Market Shows Early War Impact
The UK unemployment rate has unexpectedly increased, while job vacancies have fallen to their lowest level in five years. The figures suggest that the early impact of the Iran war is beginning to affect business hiring decisions and the wider labour market.
The unemployment rate rose to 5% in the three months to March, up from 4.9% in the three months to February. Analysts said the data points to growing caution among employers, with demand for workers likely to weaken further if the conflict continues.
Vacancies Drop To Five-Year Low
Early estimates from the Office for National Statistics show that job openings fell by 28,000, or 3.9%, to 705,000 between February and April. That is the lowest level since April 2021.
ONS director of economic statistics Liz McKeown said lower-paying sectors such as hospitality and retail have seen some of the largest declines in vacancies and payroll numbers, both in recent months and over the past year.
Payroll Employment Also Falls
The number of people on company payrolls also declined in April, with payroll employment falling by 100,000 during the month. The ONS cautioned that figures at the start of the new tax year carry greater uncertainty and are often revised upward later.
Even so, the broader trend points to a cooling labour market. Although unemployment data has been affected by collection issues, the fall in vacancies and payroll employment suggests that companies are slowing recruitment and reassessing staffing needs.
Higher Costs Pressure Employers
Business groups linked the rise in unemployment to higher labour costs, including changes in employment taxes. Kate Nicholls, chief executive of UK Hospitality, said those pressures are particularly difficult for sectors already operating on tight margins.
For households, slowing wage growth adds another challenge. Average regular earnings growth fell to 3.4% in the first three months of the year and was only 0.3% higher after inflation. That limited real wage growth is expected to keep consumer spending subdued as families prepare for higher bills.
Bank Of England Gets More Time
Cooling wage growth would normally increase expectations of interest rate cuts. However, inflation fears linked to higher energy prices mean pressure is building for rates to remain higher for longer.
Sanjay Raja, chief UK economist at Deutsche Bank, said the labour market data should allow the Bank of England’s Monetary Policy Committee to keep rates on hold while it monitors how the Iran war affects the economy. Fresh inflation figures are due on Wednesday, with economists expecting a slight decline from the 3.3% rate recorded in March.
Youth Unemployment Becomes A Concern
The weakening labour market is especially difficult for young people. Ben Harrison of the Work Foundation said youth unemployment has reached 14.7%, its highest level since late 2014.
Separate research from the Institute for Fiscal Studies suggests the fall in youth employment is approaching declines seen during the 2008 financial crisis and the Covid-19 pandemic. Between December 2022 and December 2025, the share of 16 to 24-year-olds in payrolled work fell from 54.9% to 50.6%. For policymakers, the data raises a clear warning: if firms continue to pause hiring, young workers may face lasting damage at the start of their careers.
