The UK unemployment rate rose slightly to 5% in the three months ending March, up from 4.9% in February, according to data released by the Office for National Statistics (ONS). This increase is attributed to the initial impact of the Iran war on businesses, which has led to a significant drop in job vacancies and payroll employment figures.
Key Takeaways
The UK unemployment rate rose to 5% in March due to the Iran war's impact on businesses, with job vacancies dropping by 28,000 and payroll employment falling by 100,000. Young people are particularly affected, with their unemployment rate reaching 14.7%. The data may influence the Bank of England's decision on interest rates.
- UK unemployment rate increased to 5% in March
- Job vacancies fell by 28,000, the lowest since April 2021
- Payroll employment dropped by 100,000, the largest decline since May 2020
- Young people's unemployment rose to 14.7%, the highest since November 2014
- Data may affect Bank of England's interest rate decisions
The number of job openings fell by 28,000, or 3.9%, to 705,000 between February and April, marking the lowest level since April 2021. Payroll employment figures also dropped by 100,000 in April, the largest decline since May 2020 at the start of the Covid-19 pandemic.
The rise in unemployment combined with slowing wage growth has given the Bank of England more time to decide whether interest rates need to be raised to contain inflation. Average regular earnings growth fell to 3.4% in the first three months of 2026, and was only 0.3% higher after accounting for inflation.
The data also highlighted that young people are bearing the brunt of cutbacks in the labor market. The unemployment rate for 18- to 24-year-olds rose to 14.7%, the highest level since November 2014. Separate analysis from the Institute for Fiscal Studies showed that only half of 16- to 24-year-olds were in payrolled employment at the end of 2025, attributed to rising employment costs and worsening mental health among young people.
Sterling dipped on Tuesday after data showed that Britain's employers reined in their hiring and posted fewer job vacancies in April. The dollar edged up as investors weighed Middle East tentative peace hopes against concerns that the Federal Reserve could hike rates this year. The pound was last 0.26% lower against a broadly stronger dollar at $1.3399, after jumping by 0.83% the day before.
Analysts noted that the relief rebound for the pound had been dampened by the release of much weaker-than-expected UK labor market data. This data may dampen near-term expectations for Bank of England rate hikes in response to the energy price shock. However, the UK rates market still prices in a hike at the July Monetary Policy Committee meeting, suggesting investors are placing limited weight on the sharp drop in employment reported.
Political turmoil in Britain is also affecting investor sentiment. Depending on the outcome of the June by-election, a full leadership contest could follow, stretching through July and potentially into August, during which international investors may be inclined to steer clear of UK assets.
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