The UK jobs market is showing early signs of strain following the outbreak of the Iran war, with new data published on Tuesday, April 21, revealing a sharp decline in hiring confidence and record-low vacancies.
Reflecting the immediate impact of the conflict, March saw the lowest number of job postings in nearly five years.
Vacancies dropped to 711,000, the lowest level since early 2021, as businesses scaled back recruitment in response to soaring energy prices and global instability.
Additionally, early tax office data also pointed to a fall of 11,000 on payrolls during the month.
Despite the March slowdown, official data for the three months to February showed a surprise fall in the unemployment rate to 4.9% (down from 5.2%).
However, economists warn this figure is misleading; the drop was largely driven by an increase in economic inactivity, particularly among students who are no longer actively looking for work.
Annual growth in regular pay slowed to 3.6% in the three months to February. While this is the lowest since late 2020, it was still higher than the 3.5% economists had predicted.
The BoE remains in a difficult position, as investors increased bets on interest rate hikes after the data showed that wage pressures are not cooling as fast as hoped-even as the Iran war jumps-starts energy inflation.
“Big picture, we do not think today’s data will alter the BoE’s image of the labour market,” Sanjay Raja, chief UK economist at Deutsche Bank, said. “The UK labour market is not out of the woods yet.”
“In contrast to the energy shock of 2022, the labour market is in a weaker state, constraining the bargaining power of workers, lowering the likelihood of a potential wage-price spiral,” Yael Selfin, chief economist at KPMG UK, said.
Investors on Tuesday priced in 36 basis points of BoE interest rate hikes this year-equivalent to between one and two points increase-up from 30 basis points on Monday.
By contrast, BoE governor Andrew Bailey has said the central bank should provide a clear path on defining risks to growth and jobs, as well as inflation, when making its next rate decision.
