And another thing:
The Office for Budget Responsibility may need to become more stark in its forecasts about how the UK is heading for trouble in the future over its unsustainable levels of government debt, one of its members has said.
Professor David Miles, a senior figure at the OBR, which is the government’s economics watchdog and forecaster, warned that the UK has a long term-financial sustainability issue.
In its most recent long-term projection, the OBR said the demographic pressures of an ageing population and rising costs of healthcare and other age-related expenditures are projected to push borrowing above 20% and debt above 270% of GDP by the early 2070s (it currently stands at 93.8%).
Speaking before the Treasury Select Committee today, Miles said this was a “huge issue” that was not being addressed by successive governments, who are more focused on the short term outlook.
He said:
Ever since the OBR has been doing long term projections, it has pretty much always painted a picture that under current policies, it might look alright for five, ten, 15 years, but beyond that the debt just starts rising in a way that’s clearly unsustainable.
Maybe we could spell out even more starkly what ignoring that situation means if you continue to ignore it election after election, just in terms of what it would mean for children, grandchildren, people who are alive today, and what they will face a few decades down the road.
Maybe it’s on the OBR to be a bit more stark in just the reality of what it will mean to follow these unsustainable paths for a few decades and it’s not good.
In the same committee meeting, the OBR dismissed the notion that it could realistically score the manifestos of political parties ahead of a general election like it does for the Treasury ahead of a government budget.
Tom Josephs, another senior member of the OBR, said:
There is a case for better fiscal analysis of manifestos but there’s a question of whether the OBR is the right body to do that. It would draw us very much into the political sphere and create risks around our impartiality. There would also be quite significant delivery operational issues - we would need many weeks or possibly even months of interaction between political parties where they gave the OBR their policy manifestos ahead of time and they would have to be to a certain level of detail to allow us to cost them.
G7 finance ministers: 'imperative to ensure return to free and safe transit through strait of Hormuz
Before I go:
G7 finance ministers said in a joint statement that it is “imperative” to ensure a return to free and safe transit through the strait of Hormuz and ease strains on energy, food and fertiliser supply chains.
Ministers also agreed on the need for action to tackle trade imbalances in a fragmented global economy, saying the current situation was unsustainable, but were light on plans for concrete measures.
Finance ministers and central bank governors from G7 countries met in Paris for a second day of talks to discuss the economic fallout from the Middle East conflict and volatility on global bond markets.
They called for the immediate re-opening of the strait of Hormuz and the need to maintain pressure on Russia over Ukraine, agreeing common language on issues on which the group of seven advanced economies have not always seen eye-to-eye.
Hosting the talks, French finance minister Roland Lescure said participants also discussed diversifying the supply of rare earths and critical minerals and addressing global economic imbalances – a major theme of France’s G7 presidency.
He said such imbalances are fuelling trade friction and risk a turbulent unwinding in financial markets, highlighting a pattern whereby China under-consumes, the United States over-consumes and Europe under-invests.
Lescure told reporters at the conclusion of the meeting:
We all share a common view. Those imbalances are not sustainable.
Closing summary
Oil prices are still down after Donald Trump said he would pause a planned attack on Iran, after Tehran tabled a new peace proposal. Brent crude has fallen 1.56% to $110.35 a barrel.
On Wall Street, stocks have opened lower, with the Nasdaq down 1%. In London, the FTSE 100 index is now flat, giving up earlier modest gains.
In government bond markets around the world, yields have risen slightly. The yield (or interest rate) on the UK’s 10-year gilt reversed an earlier 5 basis point drop to rise by 2bps.
Our main story:
Unemployment in the UK has unexpectedly risen to 5% while wage growth has slowed, according to official figures, in the first snapshot of how companies are reacting to the impact of the Iran war.
The Office for National Statistics (ONS) said the rate of unemployment was up in the three months to March, from 4.9% in the three months to February, a rate that City economists had expected to hold steady.
More up-to-date tax data showed the number of payrolled employees dropped sharply in April, falling by 100,000, after a 28,000 decline in March. The fall was much sharper than expected and the biggest monthly decline since records began in 2014, excluding during the pandemic.
Vacancies also fell to their lowest level in five years, with a decline of 28,000 to 705,000 for February to April.
Suren Thiru, the chief economist at the Institute of Chartered Accountants in England and Wales, said:
These figures signal a growing distress within the UK’s labour market as soaring labour costs and the fallout from the Iran war drive more businesses to reduce recruitment and limit pay awards.
The continued fall in job vacancies is a worrying sign of the strength of the labour market as it suggests that demand for staff is deteriorating quickly amid global headwinds and the growing financial squeeze on firms.
Thank you for reading. We’ll be back tomorrow. Take care! – JK
Investors challenge Shell over fossil fuel strategy
Investors have repeatedly challenged Shell over its fossil fuel-focused straegy at the oil giant’s annual meeting in London.
The company’s board defended its ongoing investments in oil and gas as shareholders gathered at the Sofitel Hotel at Heathrow Airport today.
A group of 21 institutional investors, led by Dutch campaign group Follow This, filed a proposal calling for the company to publish a strategy on how it plans to create shareholder value under the scenario that fossil fuel demand falls as the world transitions to clean energy.
The resolution received 12.7% of investor votes, according to provisional figures.
Campaigners behind the resolution said the double-digit support shows “significant doubt among investors” over Shell’s fossil-focused strategy.
But the result also marks a drop in support for shareholder climate resolutions from previous years – proposals received 20.6% in 2025 and saw a peak of 30.5% in 2021.
Shell’s board urged shareholders to oppose the resolution, as did major proxy advisors ISS and Glass Lewis, which can have sway over how big investors vote. The company argued that it already addresses the issue in existing reports.
In his opening remarks, chairman Sir Andrew Mackenzie said he “won’t give you a single answer” when the question of what Shell will look like in 10 to 30 years.
But what I can tell you is this: where demand rises, our determination is to help meet it.
Where the energy system is ready to change, we are ready to move with it. And where the world looks for a business that can navigate the complexity of the decades ahead, Shell can be that business.
The oil major revealed huge profits for the first quarter of the year thanks to rocketing oil prices caused by the Iran war.
Chief executive Wael Sawan said the crisis has provided “another reminder of the fundamental importance of energy” as Iran’s stranglehold on the strait of Hormuz continues to squeeze global oil and gas supply, sending energy prices rocketing.
Sawan argued that the world “needs to maintain secure energy supplies while accelerating the transition to affordable low-carbon solutions”.
The company has watered down several short-term and medium-term climate targets, citing uncertainty in the energy transition, though it has maintained its plan to cut emissions to net zero by 2050.
Confronting the board about its “carbon-based business model” during a Q+A session, Mark van Baal, founder of Follow This, highlighted how Shell cut its dividend payments to shareholders by 66% when oil demand plummeted during the 2020 coronavirus pandemic.
“Imagine what happens when it declines structurally,” he said before asking the board why they do not want to publish a plan for this scenario.
It is easy to be distracted by temporary profits and lose sight of the long term.
In response, Sawan said the board believes the resolution could
create a precedent for recurring single source scenario-based disclosure, which ultimately adds costs without helping our investors.
He added that the resolution would not just be “damaging but duplicative” because the issue is already covered in existing reports it shares.
Van Baal was among many shareholders who quizzed the board about its climate targets, progress on cutting planet-heating emissions, and investments in oil and gas projects in the face of the potential for declining demand.
Separately, the protest group Fossil Fuel London staged an action to coincide with the AGM outside the firm’s London headquarters.
The British Chambers of Commerce said the HS2 rail projects is “crucial to business growth”.
The HS2 high-speed railway will now cost up to £102.7bn and trains will not start running between London and Birmingham until as late as 2039, the government has admitted – £70bn more and 13 years later than originally promised.
The BCC’s director general Shevaun Haviland said:
The HS2 project is a crucial part of creating a modern transport network that helps business boost growth across the UK. We welcome the government’s recommitment to the project today.
Better rail links are essential for the future prosperity of our regional economies, supporting businesses, jobs and investment. Rail is also crucial to the movement of goods nationwide.
The construction project itself will bring huge benefits to SMEs through the HS2 supply chain. While cost management is essential, HS2 must stay on track for businesses to invest and plan for the future.
Ministers must also remain laser focused on delivering Northern Powerhouse Rail. The project will provide vital connectivity that can drive forward economic growth across large parts of the north.
BA delays resuming flights to Dubai, Doha, Tel Aviva to 1 August
British Airways has delayed resuming flights to Dubai, Doha and Tel Aviv by a month to 1 August, the carrier’s website showed. The airline has suspended services to the region because of the Iran war.
The war prompted a number of carriers to cancel flights to and from the region since the US and Israel first launched missile strikes in late February. BA, owned by IAG, said:
Due to the ongoing situation in the Middle East, we have made further changes to our flying schedule to provide greater clarity for our customers.
We’re keeping the situation under constant review and are directly in touch with affected customers to offer them a range of options.
The long-haul airline will offer a reduced flight schedule to the Middle East when it resumes services, and use the aircraft to operate more direct flights to India and Kenya, it said last month.
It has permanently dropped Jeddah as a destination. BA also intends to reduce services to Dubai, Doha, Riyadh and Tel Aviv to one daily flight.
Old Spanish Hen? Estrella owner buys Greene King ale brand
Pub chain Greene King has agreed to sell its Old Speckled Hen ale brands to the Spanish owner of Estrella lager, making it the latest in a series of British beers to be snapped up by overseas buyers.
Barcelona-based brewer Damm has agreed to buy all the Old Speckled Hen lines, including its non-alcoholic and golden ale versions.
Greene King said it would continue to brew the ale at its Westgate site in Bury St Edmunds during the sale “handover period”, but that the process would later move to Damm’s brewery in Bedford, which it opened last year.
Nick Mackenzie, the chief executive of the 227-year-old pub chain, said the company was “delighted to have secured a partner in Estrella Damm who will continue to brew the ales in the UK”.
The companies did not disclose the value of the sale, but said after the deal is complete, Old Speckled Hen beers will still be available in Greene King pubs, as well as major supermarkets in the UK and in the off-trade.
Greene King said it planned to focus on selling its beers in its own pubs and UK on trade, moving away from the off trade.
No feelgood factor for Reeves as Iran war snuffs out economic upturn
Here is our analysis of this morning’s UK job market data.
News that the UK unemployment rate jumped back to 5% in March appears to be the latest evidence that the Iran war has snuffed out the economic upturn Rachel Reeves had hoped to see in 2026.
The Office for National Statistics reports that, after an unexpected fall in the unemployment rate to 4.9% in last month’s data, it ticked back up to 5% between January and March – the first set of figures affected by the conflict.
The chancellor wanted this to be the year she could claim to have brought stability to the economy and public finances, with falling inflation and widely expected interest rate cuts restoring the feelgood factor.
Instead, the Iran war has unleashed a fresh wave of inflation – with the latest data on this to come on Wednesday – and rocked business confidence.
More timely employment data, using PAYE data from HMRC, suggest a more significant shock may be under way than is obvious from the standard Labour Force Survey.
The number of payrolled jobs in the economy fell 100,000, or 0.3%, in April on this measure – though the ONS stresses that this is a provisional estimate. That was the third-largest single monthly fall since this series began in 2014. The annual rate of decline in payrolled jobs, at 0.7%, was the fastest for five years.
Police to seek criminal charges against 77 companies and people over Grenfell fire
Scotland Yard has said it hopes to bring criminal charges against 77 companies and individuals for the 2017 Grenfell Tower fire, in which 72 people died.
The lead investigator, Garry Moncrieff, said his team of 220 detectives had gathered “strong evidence” of potential wrongdoing.
Police said they were sending a series of files of evidence to prosecutors later this year seeking a decision on whether criminal trials should be held.
The Crown Prosecution Service said it expected to make decisions on charges by June 2027, the 10th anniversary of the disaster.
Police say files will be sent to the CPS seeking charging decisions about 57 individuals and 20 companies.
Moncrieff said:
It’s our job to make sure that we do a fair, thorough, and comprehensive investigation, so that charging decisions can be taken, and that fairness runs throughout everything that we do.
HS2 bill could rise to £102bn with first trains delayed until 2039, UK admits
The HS2 high-speed railway will now cost up to £102.7bn and trains will not start running between London and Birmingham until as late as 2039, the government has admitted – £70bn more and 13 years later than originally promised.
The transport secretary, Heidi Alexander, said that the truncated railway would not be entirely completed until as late as 2043.
The figure is the first official estimate of HS2’s budget in 2026 prices. Alexander said the total cost would be between £87.7bn and £102.7bn, with one third of the rise due to inflation.
The first trains running from Old Oak Common in west London to Birmingham will now run between 2036 and 2039, with the full railway running to London Euston due to be completed between 2040 and 2043.
Alexander said that the forecasts were now “built on solid foundations with credible estimates as ranges”.
She blamed the Conservative government for standing by and watching “the world’s most expensive slow-motion car crash”, saying that Labour had inherited a “litany of failure”.
Alexander added:
I can confirm that the previous government spent most of HS2’s budget without laying a single mile of track. That is the shocking legacy.
If it seems like an obscene increase in times and costs, that is because it is. And if it seems like I’m angry, I am.
She said that the government had considered cancelling the entire project, but concluded that “it could cost almost as much to cancel the line as finish it.” She promised: “We will deliver.”
She said, however, that trains would be operated at lower speeds, to save around £2.5bn, reducing the top speed from 360km/h to 320km/h, in line with most international standards. The original design, she said, had been:
A massively overspecced folly… If we were a country the size of China I could understand it.
Fossil protests at Shell HQ on day of oil giant's annual meeting
There have been protests outside Shell’s headquarters, to coincide with the oil giant’s annual general meeting (AGM), as usual.
Fossil Free London staged a protest at Shell’s HQ, placing a Shell oil barrel outside the building. Behind it, campaigners dressed as oil executives drank “oil” (actually Treacle) from champagne glasses.
The protest was organised with the support of frontline communities in the Philippines and the Niger Delta, which are lodging cases against Shell in London courts.
However, inside the AGM at a hotel at Heathrow, Shell’s board insisted that fossil fuels will remain important, despite the climate crisis.
The global events of the last few months (i.e. the Iran war) have shown that meeting oil demand will be essential for decades to come, Shell chief executive Wael Sawan told shareholders.
The company’s chair, Albert Manifold, said solar energy and windfarms are not Shell’s strengths.
Updated
Sweden to order warships from France's Naval Group in blow to the UK's Babcock
Sweden has decided to order four navy frigates from France’s state-owned Naval Group in a Skr40bn (£3.2bn deal), in a blow to the UK’s Babcock International.
The new NATO member is seeking to boost its defence capacity in the Baltic Sea, following Russia’s invasion of Ukraine. The first of the four warships, which will be the Swedish navy’s biggest ships, is expected to be delivered in 2030.
Naval Group won the race, beating a joint bid from Britain’s Babcock and Swedish carmaker Saab, and one from Spain’s Navantia.
The purchase of the French Defence and Intervention (FDI) frigate model will be Sweden’s biggest military investment since the 1980s, prime minister Ulf Kristersson said. He told a press conference on board the Swedish naval corvette HMS Harnosand, docked in central Stockholm for the occasion, according to AFP:
The Baltic Sea has never in the modern era been as exposed, questioned and contested as it is now.
With this decision I am convinced Sweden is contributing to making the Baltic Sea considerably safer in the future.
Adding the frigates to its naval arsenal will triple Sweden’s air defence capabilities, Kristersson said.
The French president, Emmanuel Macron, said on X that Sweden’s decision reflected the countries’ mutual trust, after France agreed to buy Saab’s GlobalEye airborne early warning and control systems and Paris invited Sweden to take part in talks on European nuclear deterrence.
Johan Norlen, chief of the Swedish navy, said the frigates were important in keeping the Baltic Sea open for civilian and military transport to Finland and the Baltic States in case of an escalated conflict.
With our corvettes and frigates we are building naval operational control in the Baltic Sea together with our NATO allies.
Sweden is also building a new class of submarines, for delivery to Poland.
Crest Nicholson postpones results while in talks with lenders
The UK housebuilder Crest Nicholson has postponed its half-year results to 16 July, as it remains locked in discussions with its lenders for a temporary relaxation of its banking covenants.
The builder, which has already slashed its annual profit forecast because of high interest rates and rising building costs, warned in January that it may breach its interest cover covenant as early as April in case of a severe housing downturn.
Crest said today that talks with banks are “progressing constructively” and are expected to conclude by mid-July. It has been struggling for months, and shut its Chiltern divisional office in December with the loss of 50 jobs.
Currys shares jump as it lifts profit outlook, defying retail slowdown
The British electricals retailer Currys is leading the risers on the FTSE 250 index, with the shares up 12%, after it raised its full-year profit forecast, defying a slowdown in the retail sector.
Currys, which sells computers, video games, televisions, mobile phones and white goods, said recent trading has been “very solid” and has not been affected by the ramifications of the US-Israeli-war on Iran.
Underlying sales in the UK and Ireland, its main business, rose 3% in the year to 2 May, while sales in Nordic countries climbed 6%. The company is now forecasting a full-year profit of £191m, up 18%. This is up from its previous estimate of £180m to 190m).
Alex Baldock, the chief executive, said:
Recent trading has been very solid; we’ve not yet seen an impact from the Middle East conflict, and our energy costs are well hedged for the coming year.
This performance, combined with our strong balance sheet, means we are well positioned to navigate any market volatility ahead, tap into exciting growth opportunities and continue returning capital to shareholders.
Mel Stride, the shadow chancellor, has finished his speech and it is clear he wants to position the Conservatives as the only party that can rebuild the public finances.
He defended the Tories’ past record on fiscal policy, insisting it was only because they had “fixed the roof,” from 2010, when George Osborne was chancellor, that they could afford to support consumers and businesses through the pandemic. He did not mention Liz Truss.
Stride attacked Rachel Reeves, the chancellor, for planning to increase borrowing by a quarter of a trillion pounds across this parliament (this is because she has changed the fiscal rules, to allow significantly more investment).
As well as attacking Labour, he criticised Nigel Farage’s Reform party, saying
Reform repeatedly come out with unfunded promises or policies which they claim a fully costed, but for which the numbers simply do not add up.
The shadow chancellor restated the Conservatives’ “golden rule,” which states that at least half of any savings a Tory Treasury made, would be used to cut the deficit.
We can’t afford the nice stuff, like tax cuts, unless we make sure we are balancing the books. Getting debt off our backs is central to the vision of a brighter future.
Our economics editor Heather Stewart reports:
I’m in a book-lined conference room in Westminster where Conservative shadow chancellor Mel Stride is delivering a speech about fiscal policy, hosted by the Thatcherite Centre for Policy Studies.
Stride has claimed that moves in gilt yields in recent days mean that Andy Burnham is “already costing us all money before the byelection writ has even been served” – £300 per family, he claims, if the move last week when Josh Simons announced that he was resigning his seat, is sustained.
(Gilt yields have eased today for a second day, and the 10-year yield is back to where it was before last Friday’s jump...)
Even if Keir Starmer remains in charge, Stride says, the tumultuous political backdrop means he is, “unable to take tough decisions and increasingly compelled to lurch to the left.”
Burnham is the leftwing mayor of Greater Manchester and is gearing up to fight a byelection in Markerfield, so he can challenge Starmer for the leadership of the Labour party.
Dr Martens profit jumps despite drop in sandal sales
The turnaround at Dr Martens is gathering pace, with the British bootmaker posting a 61% rise in full-year profits, despite a drop in sales of sandals.
Shoe sales climbed 19%, boosted by models such as the 1461 Shoe, the Adrian Tassel Loafer and the Mary Jane. Dr Martens is known for its chunky boots with distinctive yellow stitching, but also sells sandals, bags and accessories.
The share price rose as much as 9% and was later up 6.5%, after full-year underlying pre-tax profits rose to £55m in the year to 29 March, recovering from a 65% decline in the previous year. However, revenue fell 2.9% to £764.9m.
“Sandals are a known gap with a fix in progress,” the company said. Sandals revenue fell 11% as it had expected, because of a lack of new products in the SS25 range. However the ZebZag range did well across sandals and mules.
Dr Martens has pulled back on discounting and promotions, and has also reduced costs, debt, and the amount of stock it holds.
The boot brand dates back to 1945 when a young German army doctor, Klaus Märtens, designed an air-cushioned sole to help him recover from a broken foot.
They were introduced to the UK in 1960, with their sturdy design gaining popularity among postal delivery workers and factory staff, before being embraced by skinheads and punks.
Updated
Standard Chartered to cut 7,000 jobs by 2030 due AI and automation
Returning to our main theme, there are more job losses on the way.
London-headquartered Standard Chartered said today that it will reduce back office roles by 7,000, out of its 80,000 staff globally by 2030, while it is expanding its key wealth business. Last year, it employed 51,000 people in support services.
This is driven by automation and the increasing use of artificial intelligence, chief executive Bill Winters said.
It’s not cost-cutting. It’s replacing in some cases lower-value human capital with the financial capital and the investment capital were putting in.
As a result, the bank expects to deliver a return of more than 15% on tangible equity in 2028, over three percentage points higher than in 2025, raising that further to 18% by 2030.
The group, which focuses on Asia and Africa, has been restructuring in recent years, which has paid off. It achieved performance targets ahead of schedule, and Winters said:
We achieved our 2026 medium-term financial targets a year earlier than planned.
We now have a more focused, streamlined and efficient organsation.
UK energy bills to rise by £209 to average of £1,850 a year from July
UK energy bills are forecast to rise by £209 to £1,850 a year for a typical dual fuel household from July, according to the consultancy Cornwall Insight.
The new energy price cap, set by the regulator, would represent an increase of 13% on the current £1,641 annual bill.
The main driver for the increase is rising wholesale prices, which climbed sharply in February and March after US and Israeli missile strikes on Iran and subsequent retaliatory attacks damaged Gulf energy infrastructure and triggered the closure of the strait of Hormuz, a key shipping route through which a fifth of global oil and gas supplies pass.
A temporary ceasefire brought some calm to markets, but prices remain elevated, pushing the July forecast to more than £200 above the current cap.
Cornwall Insight said:
While households will be understandably frustrated by a rise during the summer, the impact will be reduced as household energy usage typical falls during the hotter months. The bigger concern is October, when demand picks up again and current forecasts point to a similar cap level as July. While the October cap will depend on how the Middle East conflict unfolds, even if the conflict were to end tomorrow, the physical damage to infrastructure, and lingering effect of disrupted supply, means a fall back to April’s price cap levels in the autumn looks unlikely.
Ofgem is also consulting on a change to its definition of an ‘average household’, known as typical domestic consumption values, to reflect the fact that average household energy use has fallen.
'Real wages on the cusp of shrinking for fourth time since financial crisis' – thinktank
Real wages are on the cusp of shrinking for the fourth time in less than two decades, the Resolution Foundation has warned.
The latest ONS data shows February’s fall in unemployment was a blip. A sharp rise in March – to 5.5% in the single-month data, the highest since 2015 – returned unemployment to 5% over the first three months of the year. Early indications suggest further bad news in April, with payrolled employment falling by 100,000 on the month (although initial April estimates are always subject to large revisions).
The picture on pay packets is even bleaker. Wage growth has continued to weaken in cash terms and was only able to match – rather than outpace – inflation in March. With the war set to push up inflation over the coming months, pay packets are set to start shrinking in real terms.
The foundation notes that this stuttering pay performance since 2008 has left average weekly earnings £278 below their pre-financial crisis levels.
The one silver lining is that the weak state of the labour market means that second-round effects from rising inflation are likely to be smaller than they were following Russia’s invasion of Ukraine, giving the Bank of England pause for thought before raising interest rates.
Julia Diniz, economist at the Resolution Foundation, said:
The UK labour market entered the current period of economic turbulence in a weak place, with unemployment at five per cent and real wage growth falling to zero.
With inflation set to increase over the coming months, the UK is on the cusp of its fourth period of falling real-wage growth in less than two decades. This stuttering performance goes a long way in explaining the political and economic discontent that surrounds modern Britain.
“The one silver lining to the UK’s weak labour market is that we are much less likely to see the kind of wage-price spirals that followed Russia’s invasion of Ukraine. This should give the Bank of England pause before raising interest rates.
James Smith, developed markets economist at ING, said the UK labour market figures question the need for Bank of England rate hikes.
The latest UK jobs report, which features rising unemployment, sharply lower payrolls and tumbling wage growth, is a reminder that the economy is much less susceptible to ‘second round’ effects from the incoming energy shock on things like wage growth than it did four years ago in the last oil/gas shock. We’re still forecasting a rate hike in June, but that is far from guaranteed.
Following the April Bank of England meeting, we’ve tentatively been forecasting a one-and-done rate hike in June. That remains our base case, mainly because our house view on energy prices, particularly for natural gas, and given that the strait of Hormuz is showing little sign of reopening. But it’s a close call, and we remain open-minded about next month’s meeting. A lot will also depend on tomorrow’s inflation data.
UK government borrowing costs ease, oil prices fall
UK government borrowing costs have eased for a second day, while crude oil prices have also fallen, after Donald Trump said he had paused a planned attack on Iran to allow talks aimed at ending the US-Israeli war against the country.
The yield, or interest rate, on the 10-year gilt (as UK government bonds are known), dropped 5 basis points to 5.07%. This means that the 10-year yield is back at levels seen before a jump on Friday. The 30-year yield fell 4 basis points to 5.7%.
Markets are reacting to news that Andy Burnham, the main contender to challenge prime minister Keir Starmer, has signalled that he will not relax Starmer’s and the chancellor Rachel Reeves’ fiscal rules. Burnham is the leftwing mayor of Greater Manchester and is gearing up to fight a byelection in Markerfield, so he can challenge Starmer for the leadership of the Labour party.
Brent crude, the global oil benchmark, is down 1.3% at $110.68 a barrel.
On the stock markets, the FTSE 100 index climbed 52 points, or 0.5%, to 10,376.
Updated
“With unemployment at 5%, the expectation is that it will rise this year as business uncertainty grows amid the UK’s political unrest and the Iran War,” said Patrick Milnes, head of policy for people and work at the British Chambers of Commerce. The BCC expects it to increase to 5.5%.
A further drop in vacancies, now at their lowest outside the pandemic for more than a decade, suggests businesses are pausing recruitment. This is unsurprising as labour costs remain a key concern.
But with the conflict in Iran likely to drive higher inflation later in the year, as unemployment also rises and growth remains weak, the possibility of stagflation is very real.
To counter this the government must set out a pro-growth agenda which capitalises on the UK’s economic strengths. While AI could boost productivity, its impact on young people entering the job market is a worry, given the further rise in the number of economically inactive people aged 18-24.
Firms are also alarmed over plans to remove the lower National Minimum Wage level for 18-21 year olds. This could deter them from employing young adults and place upward pressure on all wage scales.
He said further action is needed to ease the cost burdens firms face, such as changes to electricity bill levies and reform of business rates. These would go a long way to boosting confidence.
Suren Thiru, chief economist at the Institute of Chartered Accountants in England and Wales, said:
These figures signal a growing distress within the UK’s labour market as soaring labour costs and the fallout from the Iran war drive more businesses to reduce recruitment and limit pay awards.
The continued fall in job vacancies is a worrying sign of the strength of the labour market as it suggests that demand for staff is deteriorating quickly amid global headwinds and the growing financial squeeze on firms.
Slowing salary growth offers hope that any second-round inflation effects from the Iran war will be limited, particularly with rising unemployment and a weaker economy likely to help keep pay settlements on a downward trajectory.
The UK is on the cusp of a perilous jobs crunch, with the twin financial hit on businesses from skyrocketing energy costs and declining customer demand amid the Iran conflict likely to lift unemployment close to 6% this year.
Muted wage growth and falling payroll employment make a June rate hike less likely, by fuelling optimism that a softening labour market can help ensure this inflation shock proves more transitory than persistent by dampening demand across the economy.
Paul Dales, chief UK economist at Capital Economics said:
The sharp weakening in the labour market in April may help to restrain the recent upward march in gilt yields by highlighting that, so far at least, the Iran war is prompting businesses to reduce headcounts rather than raise wage growth to compensate workers for higher inflation.
He noted that private sector wage growth excluding bonuses eased from 3.2% to 3%. That’s the slowest rate since October 2020 and is a touch below the 3.25% that the Bank of England considers broadly consistent with its 2% inflation target.
Overall, we all know that CPI inflation will rise over the next 6-12 months, possibly from 3.3% in March to between 4%-4.5%. But the weakening in the labour market suggests that the burst of inflation is more likely to be short-lived than longer-lasting and means the Bank of England may not need to raise interest rates much, if at all.
Updated
Introduction: UK wage growth slows and unemployment rises as firms react to Iran war
Good morning, and welcome to our rolling coverage of business, the financial markets and the world economy.
Unemployment in the UK has unexpectedly increased to a rate of 5%, while wage growth slowed, with businesses squeezed by the war in the Middle East.
The jobless rate rose to 5% in the three months to March, from 4.9% in February, according to the Office for National Statistics (ONS). Economists had expected it to stay unchanged.
The number of people claiming unemployment benefits rose by 27,000 in April, the largest rise since July 2024.
Regular wages, excluding bonuses, rose 3.4% year on year in the three months to March, down from growth of 3.6% in February, and matching City forecasts. Including bonuses, pay growth picked up to 4.1% from 3.9%. But after taking inflation into account, wages grew by just 0.3%.
The Bank of England is closely monitoring pay growth to assess to what extent higher consumer prices are feeding through. The Iran war has caused a surge in energy prices. But several central bank policymakers believe the slowdown in wage growth since early 2025 is likely to continue because of the war’s impact on hiring and the wider economy.
The number of payrolled employees dropped more sharply in April, by 100,000, after a 28,000 decline in March, which was revised from a smaller fall. April’s decline was the largest since the early days of the pandemic in May 2020.
Excluding the Covid period, this was the biggest monthly fall since records began in 2014, said Martin Beck, chief economist at the economics consultancy WPI Strategy. That left total headcounts 210,000 lower than a year earlier. He added:
The latest labour market data suggest the UK jobs market is starting to feel the repercussions of higher energy prices, geopolitical uncertainty and weaker business confidence.
The generational divide also remains striking. Since payroll employment peaked in October 2024, the number of employees aged 34 and under has fallen by 296,000, while employment among those aged 35 and over has risen by over 18,000. In other words, the slowdown is not being felt evenly: younger workers continue to bear the brunt of a cooling labour market.
Vacancies fell again in April to their lowest level in almost 12 years, excluding the Covid period. They are now around 15% below their pre-pandemic level, while the number of unemployed people per vacancy is among the highest since 2020. The message from employers is clear: firms are becoming more cautious, hiring plans are being scaled back, and the balance of power in the labour market is shifting away from workers.
Vacancies dropped 28,000 in the three months to April to 705,000, a five-year low.
The Agenda
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10am BST: Eurozone trade for March
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10.10am BST: Bank of England deputy governor Sarah Breeden speech
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1.30pm BST: Canada inflation for April
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