Britain's unemployment rate rose to 5% in the three months to March, snapping a brief decline and marking the first jobs market damage from the Iran war. Payroll employment dropped 100,000 in April—the largest single monthly fall since May 2020—while job vacancies fell to 705,000, their lowest level in five years.
Hospitality and retail bore the worst hits. Lower-paying sectors saw some of the largest falls in payroll numbers and vacancies both in recent months and over the past year. Employers had already cited higher payroll taxes and government reforms giving workers more rights as making hiring more expensive. The Middle East conflict layered on fresh uncertainty.
Wage growth slowed sharply. Growth in regular pay hit 3.4% in the first three months of 2026, the slowest since 2020. In the private sector, regular pay growth was just 3%. After inflation, average weekly earnings grew by only 0.3% annually in the three months to March.
The data scrambled expectations for Bank of England rate hikes. Investors trimmed bets on BoE rate hikes over the remainder of 2026, with about two quarter-point increases priced in, versus roughly a 50-50 possibility of a third hike on Monday. Weak hiring and anaemic pay growth undercut the case that workers might bid up wages in response to the inflation shock from the conflict.
Young people hit hardest
Youth unemployment reached 14.7%, its highest since late 2014. Between December 2022 and December 2025, the proportion of 16 to 24-year-olds in payrolled work fell from 54.9% to 50.6%, approaching the decline seen during the 2008 financial crisis and Covid-19 pandemic. For Prime Minister Keir Starmer and Chancellor Rachel Reeves, rising joblessness and squeezed living standards threaten to erase any political credit from earlier economic growth.