Unemployment rate ticks up to 5% and wage growth slows

The UK's jobless rate has ticked up to 5% and the pace of basic wage growth has eased further as the country faces down a fresh energy-led price shock.

Data from the Office for National Statistics (ONS) had been expected to show no movement in the unemployment rate over the three months to March from the 4.9% reported last month.

These were the first figures to take in the first weeks of the US-Iran war that prompted a sharp rise in oil and gas costs, with the resulting lift in fuel prices hurting businesses and families almost immediately.

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The ONS said that average weekly wage growth, excluding the effects of bonuses, slowed to 3.4% from 3.6%.

That maintained a pattern of easing at a time when the pace of price growth is likely to pick up in the months ahead, assuming no immediate end to the tensions in the Middle East and the effective Iranian blockade of the Strait of Hormuz shipping route.

ONS director of economic statistics, Liz McKeown, said: "Latest figures suggest the labour market remains soft, with vacancies at their lowest level in five years and unemployment higher than a year ago.

"The number of payroll employees continued to fall in the three months to March, while regular wage growth slowed further.

"Lower-paying sectors such as hospitality and retail have seen some of the largest falls in vacancies and payroll numbers, both in recent months and over the last year.

"Early estimates of the number of people on payroll in April point to further weakness. However, at the start of the new tax year, these figures carry greater uncertainty and have often seen larger than average upward revisions."

The data was released as recent surveys covering the UK's employment outlook signal troubles ahead due to the threat of rising prices adding to business costs.

The most recent study, by the Chartered Institute of Personnel and Development (CIPD) this week, showed confidence within firms hovering close to a record low, with companies prioritising cost management over investment.

It suggested that pay rises would come in around 3% on average - below the forecast rate of inflation ahead - but that the effects of the Iran war were yet to hurt hiring intentions.

The CIPD's findings were taken just before the onset of the political crisis that followed Labour's election results.

The prospect of a leadership battle ahead brings further uncertainty for businesses, just as higher costs, only some linked to the war, begin to bite.

The rate of inflation covering the 12 months to April, due to be released on Wednesday, is tipped to ease to 3% due to a lower energy price cap covering April-June, but then accelerate towards 4% by the end of the year.

It is expected to weigh heavily on demand over the second half of 2026, threatening to overcome the brighter start to the year for the economy than many had expected.

Patrick Milnes, head of policy for people and work at the British Chambers of Commerce, said of the ONS figures: "With unemployment at 5%, the expectation is that it will rise this year as business uncertainty grows amid the UK's political unrest and the Iran War. Our latest forecast expects it to increase to 5.5%.

"A further drop in vacancies, now at their lowest outside the pandemic for more than a decade, suggests businesses are pausing recruitment. This is unsurprising as labour costs remain a key concern.

"But with the conflict in Iran likely to drive higher inflation later in the year, as unemployment also rises and growth remains weak, the possibility of stagflation is very real."

(c) Sky News 2026: Unemployment rate ticks up to 5% and wage growth slows