Britain’s unemployment rate has risen and vacancies tumbled to a five-year low in the first signs of the Iran war taking its toll on an already under-pressure jobs market.
Official figures showed the jobless rate rose unexpectedly to 5% in the three months to March, up from 4.9% in the three months to February.
The Office for National Statistics (ONS) revealed another slowdown in wage growth, while it said vacancies and payroll worker numbers also tumbled amid a sharp pull-back in hiring across hard-hit retail and hospitality sectors.
The ONS estimated the number of workers on UK payrolls also slumped by 100,000 during April to 30.2 million, which is the largest fall since May 2020 at the start of the Covid pandemic, though these figures are subject to revision.
It said vacancies dropped by 28,000 quarter on quarter to 705,000 in the three months to April, which is the lowest level since the same period in 2021.
Thomas Pugh, chief economist at RSM UK, said the plummeting payroll data was “the first sign that the energy shock is weighing on employment”.
“It seems inevitable that the unemployment rate will resume its upward trend in the months ahead,” he added.
The figures follow recent warnings over rising unemployment as a result of an inflation spike caused by the Iran war and the impact on consumer spending and the wider economy.
The Bank of England last month predicted that even in its most positive forecast, unemployment would hit 5.5% in 2027, with this increasing to 5.6% in a more extreme impact scenario.
Experts said the gloomy jobs data made it less likely that the Bank will aggressively increase interest rates, despite fears over surging inflation as the Iran war sends energy and fuel prices rocketing.
The ONS figures also showed regular earnings growth fell back further in the latest figures, to 3.4% in the first quarter, down from 3.6% in the three months to February and the lowest level since October 2020 – only just outpacing Consumer Prices Index inflation, by 0.3%.
ING economist James Smith said: “All of this questions the need for Bank of England rate hikes.
“The economy looks much less susceptible to ‘second round’ effects from higher energy prices on things like wage growth than it did four years ago in the last oil and gas shock.”
The data showed retail and hospitality firms saw some of the largest falls in payroll numbers and vacancies, with the ONS saying firms in the sectors had flagged “economic and geopolitical uncertainty” as reasons to halt hiring.
Retail and hospitality firms are seen as being particularly exposed, having already been hit with soaring labour costs in recent years.
The ONS said retail vacancies were down 7,000 quarter on quarter in the three months to April, while they were 11,000 lower for hospitality.
The number of payroll workers in the sectors was also sharply lower, with retail estimated to be down 76,000 year on year in April and hospitality seeing a 75,000 drop.
This is having a major impact on young workers, who traditionally find work in those sectors, with the ONS revealing the rate of unemployment among 16 to 24-year-olds jumped to 16.2% in the three months to March – the highest level since 2015.
Work and Pensions Secretary Pat McFadden stressed the latest figures also showed 416,000 more people in work than a year ago.
He said: “While this is encouraging, we know the conflict in the Middle East is casting a shadow on the labour market.”
A Government-ordered review on youth unemployment led by social mobility expert Alan Milburn “will play a key role in looking how to prevent young people falling out of work or education,” Prime Minister Sir Keir Starmer’s spokesman told reporters.
Both the Milburn review and another led by Sir Stephen Timms examining health and disability benefits are due to be published this autumn.
