The UK unemployment rate has risen to 5% in the first quarter of 2026, according to the Office for National Statistics (ONS), dealing a blow to Chancellor Rachel Reeves' hopes of an economic upturn. The increase, from 4.9% in the previous month, is the first set of data affected by the Iran war, which has disrupted business confidence and revived inflationary pressures.
More timely figures from HMRC's PAYE data show a sharper shock: payrolled jobs fell by 100,000 in April, a 0.3% monthly drop and the third-largest since records began in 2014. The annual decline of 0.7% is the fastest in five years. Young people are particularly hard hit, with unemployment among 18- to 24-year-olds reaching 14.6%, the highest in 11 years.
Regular pay growth, excluding bonuses, slowed to 3.4% in the three months to March, the weakest since the depths of the Covid pandemic in 2020. In the private sector, it was just 3%. This anaemic wage growth, combined with rising prices, is squeezing household finances.
Economists suggest the weak labour market may deter the Bank of England from raising interest rates next month. Sanjay Raja of Deutsche Bank said the data could “stop the MPC in its tracks”, while Andrew Wishart of Berenberg argued that an early end to the Iran war could keep rates on hold. However, for Reeves and Prime Minister Keir Starmer, the grim figures mean little feelgood factor for households facing rising unemployment and falling living standards.
