The UK unemployment rate has unexpectedly climbed to 5%, according to official data released Tuesday, as the ongoing war in Iran begins to weigh on the country's labor market. The rise from the previous quarter's 4.7% caught economists off guard — most had forecast the rate would hold steady. The Office for National Statistics (ONS) reported that the number of people out of work increased by 142,000 in the three-month period ending February.
How the war is squeezing jobs
The jump in unemployment is the first clear sign that the conflict in Iran is seeping into Britain's broader economy. Businesses across manufacturing, logistics, and retail have reported a sharp slowdown in orders, partly due to disrupted shipping routes in the Gulf and soaring energy costs. The war has pushed oil prices above $120 a barrel, raising input costs for firms that were already struggling with inflation. Several large employers have paused hiring, while smaller companies have begun cutting shifts. The services sector, which accounts for roughly 80% of UK employment, has been particularly cautious, with many firms waiting to see how long the conflict lasts before committing to new staff.
Economists missed the signal
Forecasters at the Bank of England and major investment banks had predicted that unemployment would remain at 4.7% for at least another quarter. The unexpected rise suggests that the war's effect on confidence and demand is already deeper than models captured. The ONS also noted that the number of job vacancies fell by 27,000, the first decline in nearly a year, pointing to a cooling labor market. Wage growth, meanwhile, has slowed to 4.2% from 5.1%, as employers become less willing to offer pay rises in an uncertain climate.
Pressure on the government and Bank of England
The data puts new pressure on Prime Minister Rishi Sunak's government, which had staked its economic message on a falling unemployment rate. Opposition parties have called for an emergency budget to support affected workers and industries. The Bank of England now faces a difficult choice: if it holds interest rates steady to cushion the labor market, it risks letting inflation — currently at 8.7% — stay stubbornly high. If it raises rates again, it could push more firms into layoffs. The central bank's next policy meeting is scheduled for May 11.
For the 1.7 million people now officially unemployed, the search for work is getting harder. Claimant count data in the coming weeks will show whether the rise is the start of a longer trend or a one-off blip driven by the war's immediate shock. The government has so far announced no new job support programs beyond existing welfare payments.
