UK Unemployment Rises to 5% as Iran War Hits Firms, Wages Stall

Unemployment in the United Kingdom rose unexpectedly to 5 percent in the three months to March, according to official data, as businesses began to feel the impact of the war in Iran, while wage growth slowed.

The Office for National Statistics (ONS) reported that the unemployment rate increased from 4.9 percent in February, defying expectations from City economists who had forecast no change.

More recent tax data showed a sharp drop in payrolled employees in April, falling by 100,000 after a decline of 28,000 in March, the ONS said.

Excluding bonuses, wage growth was 3.4 percent year-on-year in the three months to March, down from 3.6 percent in February. While this matched economists’ expectations, it was the slowest pace since the three months to October 2020. After adjusting for inflation, wages rose only 0.3 percent.

Including bonuses, wages increased by 4.1 percent, compared with a rise of 3.8 percent in the previous quarter.

The Iran war began on 28 February, making this the first full month of official data to reveal how employers responded to rising energy costs, as global oil and gas prices surged due to the effective closure of the Strait of Hormuz.

The emerging picture of the UK economy since the start of the Middle East conflict has been mixed. Surveys indicated consumers are fearful of rising inflation and are reducing discretionary spending, while businesses reported sharp increases in input costs. However, ONS figures released last week showed the UK economy grew by 0.3 percent in March and by 0.6 percent over the first quarter.

This unexpectedly high GDP figure prompted the International Monetary Fund to raise its UK growth forecast for 2026 on Monday from 0.8 percent to 1.0 percent, citing the country’s strong prewar momentum and robust first-quarter performance.

However, the Bank of England expects unemployment to hit 5.1 percent by mid-2026 and then rise to between 5.5 percent and 5.6 percent by summer 2027, based on current projections of how the Iran war may affect the UK economy.