More than 100,000 people in Britain could lose their jobs within months as economists warn that instability in the Middle East may deepen the country’s labour market difficulties. Experts say the conflict involving the United States, Israel and Iran could keep energy prices elevated, potentially forcing the Bank of England to postpone expected interest rate reductions. As a result, employers may respond by cutting jobs or pausing recruitment. James Smith, an economist at ING, said the scale of the impact would largely depend on how long energy costs remain high.
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“If the disruption lasts for around three months, it would not be surprising to see unemployment pushing above 5.5 per cent,” he said.
Official figures released last month showed that the UK unemployment rate had already climbed to 5.2 per cent, the highest level in five years. For the first time since the global financial crisis, Britain’s jobless rate now exceeds that of Italy, a country historically regarded as one of Europe’s weaker economies.
Should the rate rise to 5.5 per cent, economists estimate that at least 104,000 additional people could be pushed out of work, taking the total number of unemployed to nearly two million.
Jordan Rochester, an analyst at the Japanese bank Mizuho, warned that the labour market may face even greater pressure if the unrest continues. Asked whether the situation in the Middle East would drive unemployment higher in the UK, he said: “Unfortunately, yes. The trend is already moving in that direction.”
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He added that if unemployment continues to rise at a similar pace to the past year, the rate could approach 6 per cent rather than the roughly 5 per cent forecast by many analysts. Manufacturers have also raised concerns that rising energy costs could undermine an already fragile economic recovery.
Industry body Make UK reported that while manufacturing activity improved slightly at the start of the year, domestic demand had weakened significantly. The organisation warned that rising energy prices — now climbing further amid the conflict with Iran — alongside higher employment costs were weighing on growth.
According to Make UK, companies have raised their own prices at the fastest rate since 2023. Fhaheen Khan, the group’s senior economist, said businesses were facing mounting pressures.
“Although output and investment have shown some improvement after a difficult end to last year, increasing costs and weak domestic demand are placing real strain on companies,” he said.
He also noted that the UK already faces some of the highest industrial energy costs in the developed world. Any sustained rise in oil and gas prices, he warned, could quickly increase production costs, squeezing profit margins and discouraging investment.
Recent strikes by the United States and Israel on Iran have disrupted global oil supplies, sending the price of Brent crude close to $100 a barrel. At the start of the year, the benchmark had been trading nearer to $60.
As a net importer of energy, the UK is particularly vulnerable to rising oil prices, which can quickly feed into broader inflation.
Only weeks ago, financial markets expected the Bank of England to cut interest rates twice this year in an effort to support the weakening economy. However, the latest disruption has altered expectations, with traders no longer fully anticipating even a single reduction. Current projections suggest the base rate could remain at around 3.75 per cent.
Mr Rochester also cautioned that policymakers may even be forced to raise rates again in 2027 if inflationary pressures persist.Both he and Mr Smith warned that the British economy now appears far more vulnerable than during the previous energy shock in 2022, triggered by Russia’s invasion of Ukraine. At that time, unemployment stood at around 3.8 per cent, close to historic lows.
“Today the situation is very different,” Mr Smith said, pointing to recent pressures on sectors such as hospitality following increases in National Insurance contributions and the minimum wage.
“We saw a noticeable fall in employment in those industries, with little evidence of prices rising as a result,” he said. “Sectors most exposed to higher energy costs, particularly in services, are unlikely to pass those costs on as easily as they could in 2022. Instead, they are more likely to reduce staff numbers.”
The warning raises further concerns for younger people, who already face significant challenges entering the labour market, with youth unemployment currently higher in the UK than in much of Europe.
