𝓤𝓷𝓲𝓽𝓮𝓭 𝓝𝓮𝔀𝓼

Rachel Reeves has been issued an urgent warning as the UK employment crisis looks set to worsen amid the ongoing war in Iran. Economists have sounded the alarm over the impact of the Middle East conflict on interest rates, cautioning that rising costs could see employers put a freeze on hiring or cull existing workforces. James Smith, of investment bank ING, said unemployment could hit 5.5% if the war continues for a further three months, putting an extra 104,000 out of work.

Jordan Rochester, of Japanese bank Mizuho, also told The Telegraph: “If the rate of unemployment’s ascent matches that of the past year, it would defy forecasts again and put us close to 6% rather than 5%.” UK unemployment is already at a five year high of 5.2%, with young workers among the hardest hit and almost one in six left without a job.

Companies are grappling with sky-high costs linked to increases in the national minimum wage and the £25billon national insurance raid announced in the 2024 Autumn Budget.

Economists had previously anticipated an interest rate cut by the Bank of England this month, but soaring energy prices caused by the war in Iran now mean borrowing costs will likely remain unchanged at 3.75%.

Thomas Pugh, chief economist for RSM UK, said the global volatility meant it was logical for the Bank to “wait for more clarity”, but warned a rate cut in April could also be off the table “unless there’s a rapid resolution” to the Iran crisis.

Mr Smith said employment in the hospitality and service sector was most likely to take a hit as a result of the economic turmoil.

He also suggested the already-high unemployment rate revealed a weakness that made comparisons to the energy crisis of 2022, when Russia invaded Ukraine and when unemployment was around 3.8%, unhelpful.

“These sectors that are most affected by higher energy prices don’t have the pricing power that they did in 2022,” he said. “They’re more likely to deal with higher energy costs by cutting back their worker numbers.”