The UK unemployment rate has risen unexpectedly, while job vacancies have fallen to their lowest level in five years, in signs that pressure is building across the labour market.
The unemployment rate increased to 5% in the three months to March, up from 4.9% in the three months to February. At the same time, early estimates from the Office for National Statistics (ONS) show that vacancies fell by 28,000, or 3.9%, between February and April, taking the total to 705,000. That is the lowest level since April 2021.
Analysts said the figures suggest the first effects of the Iran war are starting to feed through to hiring decisions, with businesses becoming more cautious as uncertainty grows. They warned that demand for workers could weaken further if the conflict continues to weigh on confidence, costs and investment.
ONS director of economic statistics Liz McKeown said lower-paid sectors, including hospitality and retail, had seen some of the largest falls in vacancies and payroll numbers, both recently and over the past year.
Payroll employment also fell in April, with the number of employees dropping by 100,000. However, McKeown said these figures come at the start of the new tax year, when payroll data can be more uncertain and is often revised upwards later.
Firms pause recruitment
Although the ONS has previously warned that its unemployment data has been affected by collection issues, other indicators point in the same direction. Falling vacancies and a drop in payroll employment both suggest employers are slowing or pausing recruitment.
Kate Nicholls, chief executive of UK Hospitality, said rising unemployment was linked to higher labour costs, including changes to employment taxes. Businesses in sectors with tight margins appear to be responding by cutting back on hiring.
Wage growth is also cooling. Average regular earnings growth fell to 3.4% in the first three months of the year. Once inflation is taken into account, pay was only 0.3% higher.
Susannah Streeter, chief investment strategist at Wealth Club, said weak real wage growth was likely to keep consumer spending subdued, as households continue to prepare for higher bills. Normally, slower wage growth would increase expectations of interest rate cuts. But with inflation still a concern, Streeter said pressure was building for rates to remain higher for longer.
Sanjay Raja, chief UK economist at Deutsche Bank, said the latest jobs data may give the Bank of England’s Monetary Policy Committee more time to keep interest rates on hold while it assesses the wider economic impact of the Iran war.
Fresh inflation data is due on Wednesday, with economists expecting a slight fall from the 3.3% recorded in the year to March.
Youth unemployment raises concern
Work and Pensions Secretary Pat McFadden said the figures showed there were 416,000 more people in work than a year earlier, which he described as encouraging. However, he added that the Iran war was casting a shadow over the labour market and said tackling youth unemployment remained a priority.
Shadow business secretary Andrew Griffith said the figures backed up warnings from businesses that employment tax rises were increasing costs and making workers pay the price.
Ben Harrison, director of the Work Foundation at Lancaster University, said the combination of higher unemployment and fewer vacancies was making the jobs market especially difficult for young people. Youth unemployment has reached 14.7%, its highest level since late 2014.
Separate research by the Institute for Fiscal Studies found that the fall in youth employment is approaching the scale of the declines seen during the 2008 financial crisis and the Covid-19 pandemic. It said the proportion of 16 to 24-year-olds in payrolled work fell from 54.9% in December 2022 to 50.6% in December 2025.
Jed Michael, research economist at the IFS, said early unemployment can have long-term effects on careers. Jonathan Townsend, UK chief executive of The King’s Trust, said the findings showed the problem may not simply correct itself as economic conditions improve.
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