The United Kingdom is expected to lose 163,000 jobs this year as economic fallout from the Iran war takes hold, with lower-income regions facing the most severe impact, according to a new report.
The Item Club's latest regional outlook warns that South Wales and the Humber, two of the lowest-income regions in the UK, will suffer the most painful job market woes over the next year due to sharp increases in energy prices. These areas rely heavily on manufacturing and construction, sectors that the Item Club cautions will shed jobs in response to higher costs and supply chain disruptions stemming from the Middle East conflict.
The report predicts job losses of 5,700 in South Wales and 2,800 in the Humber over 2026. Tim Lyne, economic adviser to the Item Club, said: "Some of the lowest income regions will feel the biggest effects of the manufacturing and construction sectors reducing headcount in the face of rising energy prices and supply chain disruption. While consumers in these areas typically have less rainy-day savings, which will reduce spending in the retail and hospitality sectors."
Overall, the UK employment rate is forecast to decline by 0.4% this year, equivalent to 163,000 net job losses. This will be driven by a pullback in consumer spending, soaring costs of fuel, energy, materials, and ingredients, as well as disruption to shipping. The Bank of England warned late last month that the rate of UK unemployment could hit 5.6% this year, up from 5.2% currently, under its more gloomy scenario for the war's impact.
Regional Impact and Bright Spots
The Item Club said that as households rein in discretionary spending amid a surge in the cost of living, the retail and hospitality sectors will suffer the biggest slowdown across Britain's major cities. The independent forecasting group predicts employment in London will drop by 25,000 this year, with reductions of 12,500 in Birmingham, 9,800 in Leeds, and 6,200 in Glasgow.
However, there may be some bright spots. Cambridge is set to see employment growth in 2026, while Belfast and Edinburgh are expected to experience relatively limited job losses. Mr Lyne noted: "Across the UK, the jobs market is going to soften, but it's looking especially fragile in South Wales and the Humber as they're particularly exposed to manufacturing businesses that are seeing big increases in their costs of materials. Resilience will come in places like Cambridge where the tech sector is based."
Public Sector and Living Standards
The report said that while publicly-funded sectors such as education, public administration, and human health and social work are expected to hire more jobs over the year, this will not be enough to offset wider losses. It also warns of a widening gap in living standards across the UK caused by the Iran war. Low-income areas will see households suffer the steepest hikes in the cost of living, as more of their spending goes on essentials like food, fuel, and energy bills, which are set to see big price rises.
Households in cities such as Newcastle, Belfast, and Birmingham spend as much as 13% of their disposable income on energy and food, compared to less than 9% for an average household in London, according to the report. This could leave these cities particularly exposed if the Iran war is not resolved soon, the Item Club said.
A UK Government spokesman said: "Recent figures show that there was an improvement in the labour market at the beginning of the year with unemployment falling below 5%, 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% for 10,000 manufacturers. Our mission for clean power by 2030 will get us off the rollercoaster of fossil fuel prices, to cut bills for businesses and households for good."
