UK employers cut hiring and post fewer jobs under shadow of Iran war
By William Schomberg and Andy Bruce
Impact of Iran War on UK Labour Market and Economy
LONDON, May 19 (Reuters) - Britain's employers reined in their hiring and posted fewer job vacancies in April, according to data on Tuesday which showed the impact of the Iran war on the economy and prompted investors to cut their bets on Bank of England interest rate hikes.
Payroll Data and Unemployment Trends
Early payroll data from the tax office - often revised sharply around the start of the tax year in April - showed a heavy fall of 100,000 in the month from March, and estimates for the previous four months were lowered.
The unemployment rate - a high-profile gauge of the economy albeit derived from a survey that is being overhauled - ticked up to 5% for the first quarter, from 4.9% in the three months to February, potentially adding to the headaches of embattled Prime Minister Keir Starmer.
The Office for National Statistics said the April drop in payrolls was the biggest since May 2020, at the start of the COVID-19 pandemic, though it stressed the figures were likely to be revised.
Political and Economic Reactions
Work and pensions minister Pat McFadden pointed to an increase in the number of people in work from a year earlier but said: "We know the conflict in the Middle East is casting a shadow on the labour market."
James Smith, an ING economist, said the payroll figures, along with slower wage growth, meant his forecast that the BoE will raise rates in June now looked a close call.
"All of this questions the need for Bank of England rate hikes," Smith said, adding the economy looked less susceptible to demands for higher wages or companies pushing up prices than after Russia's full-scale invasion of Ukraine which also caused an energy price shock.
Investors trimmed their bets on BoE rate hikes over the remainder of 2026, with about two quarter-point increases priced in, compared with a roughly 50-50 possibility of a third hike priced in on Monday.
Allan Monks, an economist with JP Morgan, said additional signs of jobs market weakness would probably dampen the BoE's appetite for a quick rate rise.
Inflation data on Wednesday would be key for assessing whether stubborn inflation pressures are weakening, he said.
Jobs Market Feeling the Strain
Sector-Specific Impacts
The ONS said lower-paying sectors such as hospitality and retail saw some of the largest falls in payroll numbers and vacancies in the most recent data and over the last year.
Employers have complained that higher payroll taxes and a government reform to give workers more rights have made hiring more expensive for them.
Expert Commentary and Business Sentiment
"The latest figures point to a labour market feeling the strain," said Jack Kennedy, senior economist at jobs platform Indeed, adding the fast pace of growth in the economy in early 2026 would be hit by the worries about the Iran war.
"A volatile domestic political backdrop adds uncertainty that businesses could do without," he said.
Starmer looks set to be challenged as leader of the governing Labour Party, raising questions about policy just as the Iran war is also hitting the economy.
Surveys of businesses in April showed firms were concerned about the economic outlook and inflationary pressures caused by the conflict and they planned to cut hiring.
Key Labour Market Statistics
Tuesday's data showed vacancies fell to 705,000 in the three months to April, the lowest number since the three months to February 2021.
Growth in wages, excluding bonuses, stood at 3.4% in the first three months of 2026 compared with the same period last year, the slowest increase since 2020.
Adjusting for inflation, average weekly earnings excluding bonuses grew by only 0.3% annually in the three months to March.
The number of employed people rose by 148,000 in the first quarter, with the growth entirely due to rising numbers of self-employed.
(Writing by William Schomberg; Editing by Sarah Young, Andy Bruce, Andrew Heavens, Peter Graff)
