The United Kingdom is projected to shed 163,000 jobs this year as the economic fallout from the Iran war intensifies, with lower-income regions bearing the brunt of the downturn, according to a new report by the Item Club. The analysis highlights that South Wales and the Humber, two of the nation's most economically vulnerable areas, will experience the most severe employment declines over the next twelve months due to sharp increases in energy prices.
Regional Disparities in Job Losses
Both South Wales and the Humber are heavily dependent on manufacturing and construction industries, sectors that the Item Club warns will reduce headcount in response to rising costs and supply chain disruptions stemming from the Middle East conflict. The report forecasts a drop of 5,700 jobs in South Wales and 2,800 in the Humber during 2026. Tim Lyne, economic adviser to the Item Club, explained: "Some of the lowest income regions will feel the biggest effects of the manufacturing and construction sectors reducing headcount in the face of rising energy prices and supply chain disruption. Consumers in these areas typically have less rainy-day savings, which will reduce spending in the retail and hospitality sectors."
National Employment Trends
Overall, the UK's employment is expected to contract by 0.4% this year, representing a net loss of 163,000 positions. This decline is driven by a pullback in consumer spending, soaring costs for fuel, energy, materials, and ingredients, as well as shipping disruptions. The Bank of England warned late last month that the unemployment rate could reach 5.6% this year, up from 5.2%, under a more pessimistic scenario for the war's impact. The Item Club noted that as households cut discretionary spending amid a surge in the cost of living, the retail and hospitality sectors will suffer the most significant slowdown across major UK cities.
Urban Job Losses and Bright Spots
Employment in London is predicted to fall by 25,000 this year, with Birmingham losing 12,500 jobs, Leeds 9,800, and Glasgow 6,200. However, there are some positive outliers: Cambridge is expected to see employment growth in 2026, while Belfast and Edinburgh are likely to experience relatively limited job losses. Mr Lyne added: "Across the UK, the jobs market is going to soften, but it's looking especially fragile in South Wales and the Humber as they're particularly exposed to manufacturing businesses that are seeing big increases in their costs of materials. Resilience will come in places like Cambridge where the tech sector is based."
Public Sector and Living Standards
The report indicates that publicly-funded sectors such as education, public administration, and human health and social work are expected to hire more workers over the year, but this increase will not offset broader losses. It also warns of a widening gap in living standards across the UK caused by the Iran war. Low-income areas will face the steepest hikes in the cost of living, as a larger share of their spending goes on essentials like food, fuel, and energy bills, which are set to rise significantly. Households in cities such as Newcastle, Belfast, and Birmingham spend up to 13% of their disposable income on energy and food, compared to less than 9% in London, leaving them particularly exposed if the conflict persists.
Government Response
A Government spokesman commented: "Recent figures show that there was an improvement in the labour market at the beginning of the year with unemployment falling below 5%, and 332,000 more people in work than a year ago. But we cannot escape the effects of the war in the Middle East which are likely to feed through to prices and employment in the coming months. We will do everything we can to support the country through this period, including by slashing energy bills by up to 25% for 10,000 manufacturers. Our mission for clean power by 2030 will get us off the rollercoaster of fossil fuel prices, to cut bills for businesses and households for good."
