Unemployment falls to 4.9% but hiring slowdown raises 'stagflation' risk for British economy

Joe Sledge
Tue, 21 Apr 2026 06:21:31 +0000

Britain's unemployment rate has unexpectedly fallen to 4.9 per cent, offering a rare piece of positive economic news despite growing signs of strain across the labour market.

The figure marked a decline from 5.1 per cent in the previous reading, covering the three months to February, the Office for National Statistics (ONS) said.

However, broader indicators suggest the apparent improvement may mask a weakening jobs market as hiring slows and demand for workers declines.

Early data shows payroll numbers have started to fall, with employers becoming increasingly cautious about taking on new staff.

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Wage growth has also weakened significantly, while the number of job vacancies has dropped to its lowest level in nearly five years.

The figures come as the UK faces mounting economic pressure linked to instability in the Middle East and rising global energy costs.

HM Revenue and Customs (HMRC) data showed payrolled employment fell by 11,000 in March, coinciding with the escalation of the US-Iran conflict which drove a sharp increase in oil and gas prices.

Vacancies have now fallen to their lowest level in almost five years, reflecting a sustained period of reduced hiring activity among businesses.

Secretary of State for Work and Pensions, Pat McFadden, said: "These figures show that there was an improvement in the labour market at the beginning of the year with unemployment falling below five per cent, 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 per cent for 10,000 manufacturers.

“And we’re focusing on future proofing and upskilling our workforce through our £2.5billion investment to get more young people earning and learning alongside personalised support to help sick or disabled people who had previously been written off.”

Regular pay growth slowed to 3.6 per cent from 3.8 per cent, marking the weakest rate of increase in more than five years.

Liz McKeown, director of economic statistics at the ONS, said: "The number of workers on payroll remained broadly flat in recent periods, reflecting ongoing weak hiring."

She added: "Regular wage growth has slowed further with growth at its lowest rate in over five years."

The data also showed a rise in the number of people not actively seeking work, including fewer students looking for employment alongside their studies.

Suren Thiru, Chief Economist at the Institute of Chartered Accountants in England and Wales (ICAEW), warned that the risk of stagflation is rising as the labour market shows signs of strain.

Stagflation is an economic condition characterised by the rare combination of slow economic growth, high unemployment, and rapidly rising inflation.

On mixed labour‑market signals: “The UK’s labour market is sending mixed signals to policymakers with a fall in unemployment overtaken by March’s drop in payrolled employment as the economic fallout from the Iran war seemingly weakened recruitment activity.”

On wage growth and consumer spending: “Weakening wage growth is a mixed blessing because while it may help prevent interest rate rises, it will also suppress consumer spending – a vital source of economic growth – particularly given the financial squeeze from surging fuel costs.”

On the outlook for jobs: “The Iran conflict will soon pull the UK’s labour market into more troubled waters with skyrocketing energy costs and weaker customer demand amid heightened uncertainty likely to push unemployment uncomfortably close to six per cent, especially given elevated employment costs.”

Economic forecasts indicate conditions could deteriorate further over the coming year as external pressures continue to weigh on growth.

The Item Club has projected that unemployment could rise to 5.8 per cent within just over a year, potentially affecting around 250,000 more workers.

Rising energy prices linked to the Middle East crisis are expected to push inflation from three per cent to a peak of four per cent later this year.

Economic growth is forecast to slow sharply in 2026, with output expected to expand by just 0.7 per cent.

Ben Harrison, Director of the think tank Work Foundation at Lancaster University, said: “Today’s figures indicate many UK workers and jobseekers are poorly placed to withstand renewed global economic instability.

“Pay growth is at its weakest for more than five years as nominal wage growth fell to 3.6 per cent.

He added that "four in ten workers already report cutting back on food and essentials, while many more have reduced spending on non-essential items because of rising living costs."

The Item Club warned that the UK economy could "flirt" with recession if current trends persist.

Businesses in the private sector have pointed to rising costs as a key factor behind staff reductions, including higher national insurance contributions and increases to the minimum wage.

When Labour entered Government, the unemployment rate stood at 4.1 per cent.

Chancellor Rachel Reeves is due to address the House of Commons later today, where she is expected to defend her economic approach.

Labour has signalled it will prioritise targeted support rather than broad financial interventions as energy costs rise.

Officials have indicated that immediate large-scale relief for households and businesses is unlikely.

The Chancellor is expected to rule out measures that could risk pushing inflation higher.

Instead, policy is expected to focus on strengthening defence capabilities and improving long-term energy security.