Iran war to push 100,000 Britons out of work within months
Employers to offset rising energy costs by cutting their workforce or freezing hiring
Eir Nolsøe Economics Correspondent
Eir Nolsøe is Economics Correspondent at The Telegraph covering stories on government tax and spend, the labour market and monetary policy. See more
Published 16 March 2026 6:34am GMT
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More than 100,000 Britons risk being pushed out of work within months, as experts predict the UK’s jobs crisis will be exacerbated by Donald Trump’s war in Iran.
Economists have warned that the UK’s unemployment rate will peak at a higher level in coming months because turmoil in the Middle East will force the Bank of England to delay interest rate cuts.
James Smith at ING, the investment bank, said that, if the conflict persists, employers would seek to offset rising energy costs by cutting their workforce or freezing hiring.
Mr Smith said: “It depends how long energy prices stay high. If we’re in a scenario where the disruption lasts three months or so, then I would imagine [unemployment would be] be pushing above 5.5pc.”
Unemployment is already at a five-year high of 5.2pc, official statistics published last month showed. Britain now has a higher jobless rate than Italy, a country often viewed as the sick man of Europe, for the first time since the financial crisis.
A further increase would mean at least an extra 104,000 Britons would be out of work, bringing the total number of unemployed just shy of two million.
Jordan Rochester, at Japanese bank Mizuho, added to warnings that job seekers could face an even tougher market in the coming months because of unrest in the Middle East.
Asked whether the conflict was likely to push British unemployment higher, he said: “Unfortunately, yes, it will. It’s already on a path higher.”
Mr. Rochester added: “If the rate of unemployment’s ascent matches that of the past year, it would defy forecasts again and put us closer to 6pc rather than 5pc.”
Manufacturers warned that the conflict in the Middle East also threatened to further push up prices and derail a fragile recovery.
Industry body Make UK said that manufacturing activity had increased at the start of the year, but that domestic demand had “collapsed”.
It warned that high energy prices, which are rising further due to the war in Iran, as well as employment costs, were holding back growth.
Make UK said businesses had increased their own prices at the fastest pace since 2023. Fhaheen Khan, the group’s senior economist, said: “While output and investment show some improvement after a challenging end to last year, rising costs and weakening domestic demand are creating real pressures for businesses.
“With UK industrial energy costs among the highest in the developed world, any sustained increase in oil and gas prices could quickly push up input costs, squeezing margins and limiting investment.”
Attacks by the US and Israel on Iran have already caused the biggest supply disruption to oil in history, with the price of Brent crude hovering around $100 per barrel. It is up from around $60 at the start of the year.
The UK is a net energy-importing country, making it vulnerable to higher oil prices quickly feeding through to headline inflation.
Economy in weak position
Traders had anticipated as recently as last month that the Bank of England would be able to cut interest rates twice this year, which would help to support the cratering jobs market.
However, the disruption means they are now refraining from fully pricing in a single cut this year, suggesting the base rate will stay at 3.75pc.
Mr. Rochester warned that policymakers could even be forced to opt for interest rate increases in 2027.
Both he and Mr Smith warned that the economy was in a far weaker position, as it faced its second energy shock in four years. When Russia’s war in Ukraine unleashed the energy crisis in 2022, unemployment was close to historical lows at 3.8pc.
Mr. Smith said: “Now, it’s very different. We saw this last year with the hospitality sector, where we had the big rise in National Insurance and the minimum wage. We saw a sharp drop in employment and no discernible impact on prices.
“These sectors that are most affected by higher energy prices, particularly in the service sector, don’t have the pricing power that they did in 2022. They’re more likely to deal with higher energy costs by cutting back their worker numbers.”
His comments suggest that an already dire situation for young people struggling to find work could worsen, at a time when youth unemployment is higher than in Europe.
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