UK unemployment rises to 5% as Iran war uncertainty hits hiring
The UK unemployment rate unexpectedly rose to 5% in the three months to March, up from 4.9%, as vacancies fell to their lowest level in five years, official data showed Tuesday. The Office for National Statistics reported payrolls slumped by 100,000 in April, the largest drop since May 2020, driven by pullbacks in retail and hospitality. Regular earnings growth slowed to 3.4%, only 0.3 percentage points above CPI inflation.
The UK unemployment rate rose to 5% in the three months to March, up from 4.9% in the three months to February, official data released by the Office for National Statistics (ONS) on May 19 showed, as the conflict in the Middle East weighed on hiring decisions. Most economists had expected the rate to remain unchanged.
The number of workers on UK payrolls slumped by 100,000 during April to 30.2 million, the largest fall since May 2020 at the start of the COVID-19 pandemic, although the ONS noted these figures are subject to revision. Vacancies dropped by 28,000 quarter-over-quarter to 705,000 in the three months to April, the lowest level since the same period in 2021.
Retail and hospitality firms saw some of the largest falls in payroll numbers and vacancies, with the ONS saying firms in those sectors cited "economic and geopolitical uncertainty" as reasons to halt hiring. 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 retail was estimated to be down 76,000 year-on-year in April, and hospitality saw a 75,000 drop.
Regular earnings growth fell 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 (CPI) inflation by 0.3 percentage points.
Liz McKeown, ONS director of economic statistics, said: "Latest figures suggest the labor market remains soft, with vacancies at their lowest level in five years and unemployment higher than a year ago." She added: "Lower-paying sectors such as hospitality and retail have seen some of the largest falls in vacancies and payroll numbers, both in recent months and over the last year."
The unemployment rate among 16 to 24-year-olds jumped to 16.2% in the three months to March, marking the highest level since 2015, as young workers traditionally find employment in the retail and hospitality sectors.
Work and Pensions Secretary Pat McFadden stressed the latest figures also showed 416,000 more people in work than a year ago. "While this is encouraging, we know the conflict in the Middle East is casting a shadow on the labor market," he said.
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. The figures follow recent warnings over rising unemployment as a result of the inflation shock caused by the Iran war and the impact on consumer spending and the wider economy.