The UK unemployment rate rose to 5% in the three months to March, up from 4.9% in February, marking the first monthly climb driven by the Iran war's impact on business hiring. Payroll employment dropped 100,000 in April—the biggest monthly fall since May 2020—and more provisional figures are likely to be revised even lower as the tax year settled.
Job vacancies collapsed. Job openings fell 28,000 to 705,000 between February and April, the lowest level in five years. Lower-paying sectors such as hospitality and retail saw the steepest declines in both vacancies and payroll numbers. Firms are pausing recruitment as labour costs remain a key concern and uncertainty about the conflict deepens their caution.
Wage growth slowed to 3.4% in the first three months of 2026, the weakest pace since 2020. Adjusted for inflation, average weekly earnings grew only 0.3% annually—barely keeping pace with prices. Households are already feeling the squeeze as bills rise.
Youth hit hardest
The youth unemployment rate has reached 14.7%, its highest since late 2014. Separate research from the Institute for Fiscal Studies shows the decline in youth employment rates between December 2022 and December 2025 is now approaching the scale of losses seen during the 2008 financial crisis and Covid-19 pandemic. Early career unemployment carries lasting consequences; economists warned policymakers cannot assume the problem will self-correct once economic conditions improve.
The labour market weakness gives the Bank of England room to hold interest rates steady longer while it monitors the conflict's ongoing impact. Investors cut bets on rate hikes, pricing in roughly two quarter-point increases for the remainder of 2026, down from roughly a 50-50 possibility of a third hike the day before. Inflation data arrives Wednesday.
