UK Unemployment Rate Rises to 5% as Iran War Hits Job Market

TLDR

• UK unemployment rose to 5% in March, above the expected 4.9%, nearing 10-year highs seen earlier this year.
• Payrolled employees fell by 28,000 in March and an estimated 100,000 in April, with job vacancies dropping to their lowest since 2021.
• Businesses in hospitality and retail have seen the sharpest job losses, driven by higher labor costs and new employment taxes.
• Youth unemployment has hit 14.7%, its highest since 2014, approaching levels seen during the 2008 financial crisis and Covid-19 pandemic.
• Analysts say the weak jobs data gives the Bank of England reason to hold interest rates steady rather than cut them.

Britain’s unemployment rate rose to 5% in the three months to March 2026, up from 4.9% in the previous period. The Office for National Statistics said the figure was worse than expected and brings unemployment close to the 10-year highs recorded earlier this year.

The number of workers on payrolls fell by 28,000 in March. Early estimates show a further drop of 100,000 in April. Compared to April 2025, that figure represents a drop of around 210,000 payrolled workers.

Job vacancies also fell. The ONS said openings dropped by 28,000 between February and April, bringing the total to 705,000 — the lowest level since April 2021.

The data shows the conflict in the Middle East is beginning to affect hiring decisions in the UK. Analysts at Capital Economics said businesses appear to be cutting headcounts rather than raising wages in response to inflation pressures from the war.

Hospitality, Retail, and Young Workers Hit Hardest

Lower-paying sectors have taken the biggest hit. ONS director of economic statistics Liz McKeown said hospitality and retail have seen some of the largest falls in both vacancies and payroll numbers over the past year.

Kate Nicholls, chief executive of UK Hospitality, linked the rise in unemployment directly to higher labor costs, including recent changes to employment taxes introduced by the government.

Youth unemployment has now reached 14.7%, its highest level since late 2014. Research from the Institute for Fiscal Studies, published on the same day, shows the drop in youth employment is approaching the scale of 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%.

IFS research economist Jed Michael said early career unemployment can have lasting effects on future earnings and job prospects.

Interest Rates and Wages

Wage growth slowed to 3.4% in the first quarter of 2026, just 0.3% above inflation. Normally, cooling wage growth would push expectations toward interest rate cuts.

Sanjay Raja, chief UK economist at Deutsche Bank, said the jobs data gives the Bank of England’s Monetary Policy Committee reason to hold rates steady while it watches how the Iran war affects the broader economy.

UK economy grew more than expected in the first quarter of 2026, but analysts broadly expect conditions to weaken in the coming quarters as the conflict continues.

Fresh inflation data is due on Wednesday, with experts expecting a slight fall from the 3.3% recorded in March.

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