UK employers cut around 11,000 jobs in March 2026, marking the first strong sign that the Iran conflict is starting to affect the labour market. The figures come from HMRC tax data released by the Office for National Statistics (ONS). This is the biggest monthly fall since November and is nearly double the drop seen in February.
According to Bloomberg, most economists had expected payroll numbers to remain largely unchanged. Instead, the latest data suggests a clear shift in behaviour, with businesses starting to turn more cautious about hiring as energy prices rise amid the conflict in the Middle East.
The International Monetary Fund has already warned that the UK could be among the most affected advanced economies. It expects unemployment to rise further this year. Other forecasts, including from the EY Item Club, suggest joblessness could reach 5.8% by mid-2027, with hundreds of thousands more people out of work.
UK Job vacancies fall to the lowest level in years
The ONS data suggests that pressure is also visible in hiring demand. Job vacancies fell by 29,000 in the first quarter, bringing the total down to 711,000. This is the lowest level since 2021 and close to a five-year low. It suggests that even before the full impact of higher energy costs is felt, companies are already slowing down recruitment.
Earlier data for the three months to February had shown a surprise fall in unemployment to 4.9%. At first glance, that looked like a positive sign. However, according to Bloomberg, much of that drop was linked to higher economic inactivity, especially among younger people and students. At the same time, payroll data was already showing weakness, suggesting the improvement may not last.
Even before the conflict, UK businesses were dealing with higher costs from increased employer National Insurance contributions and a rise in the minimum wage introduced in April. Now, the energy shock from the Iran conflict has hit both confidence and costs at the same time.
Wage growth slows down again
Pay growth is also losing momentum. Private sector wages rose by 3.2% in the three months to February. This was in line with expectations, but still below the level the Bank of England sees as consistent with bringing inflation back to its 2% target.
Speaking to Bloomberg, Ashley Webb, senior UK economist at Capital Economics, said the March figures are an early warning. He described the drop in payrolls as “the first signs that the rise in energy prices due to the Iran war is weighing on businesses’ hiring plans.”
UK Work and Pensions Secretary Pat McFadden also spoke about growing risks. He said there had been some improvement earlier in the year, “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.”
The labour market had shown some signs of stabilising going into 2026. But March’s fall in payrolls suggests that recovery is now under threat.
Markets calm, but inflation data in focus
Financial markets did not react strongly to the jobs data, with the pound staying mostly steady. Attention now turns to Wednesday’s inflation report, which is expected to show prices rising to around 3.3% in March as higher energy costs begin to filter through the economy.
For the Bank of England, the situation is becoming harder to read. Slowing wage growth and weaker hiring may support holding interest rates steady later this month. But at the same time, the risk of inflation staying high because of the conflict adds pressure in the opposite direction.