Rising Costs Push UK Unemployment to 5

The UK’s unemployment rate has risen to 5%, while wage growth has continued to slow, according to the latest figures from the Office for National Statistics (ONS). The data reflects growing economic strain as businesses face rising costs and households prepare for renewed pressure on their finances.

The unemployment rate increased over the three months to March, up from 4.9% reported previously, contrary to expectations that it would remain unchanged. These figures also offer an early glimpse into the economic effects of the US-Iran conflict, which has pushed oil and gas prices higher and quickly increased fuel costs for both companies and consumers.

Average weekly earnings excluding bonuses grew by 3.4%, down from 3.6%, extending a broader trend of easing wage growth. This slowdown comes at a challenging time, as inflation is expected to strengthen again in the coming months if tensions in the Middle East continue and disruptions to shipping through the Strait of Hormuz persist.

Liz McKeown, the ONS director of economic statistics, said the labour market remains subdued. Job vacancies have dropped to their lowest level in five years, while unemployment stands higher than it did a year ago. Payroll employment also continued to decline during the three months to March, with slower wage growth adding to signs of weakness.

Some industries have been hit harder than others. Lower-paid sectors, including hospitality and retail, recorded some of the sharpest declines in both vacancies and payroll employment over recent months and across the past year.

Business confidence remains fragile. A recent survey by the Chartered Institute of Personnel and Development (CIPD) found company confidence hovering near historic lows, with firms focusing more on managing expenses than investing in expansion. The survey suggested average pay increases of around 3%, below anticipated inflation levels, although the conflict with Iran had not yet significantly affected hiring plans.

However, the survey was conducted before political tensions intensified following Labour’s election results. The prospect of political uncertainty and a possible leadership contest is creating additional concern for businesses already struggling with higher operating costs.

Inflation data for the year to April, due to be published Wednesday, is expected to show a temporary easing to around 3%, helped by a lower energy price cap during April to June. Economists, however, forecast inflation could climb toward 4% by the end of the year.

This outlook may place increasing pressure on consumer demand during the latter half of 2026 and could weaken the stronger-than-expected start the UK economy experienced earlier in the year.

Patrick Milnes, head of policy for people and work at the British Chambers of Commerce, warned that unemployment is likely to rise further as economic uncertainty deepens amid political instability and the Iran conflict. The organisation forecasts joblessness could reach 5.5%.

Milnes added that declining vacancies indicate many employers are delaying recruitment due to persistent labour cost concerns. He cautioned that if inflation rises alongside higher unemployment and sluggish growth, the UK could face a serious risk of stagflation later this year.