Britain is expected to lose 163,000 jobs this year amid the economic woes caused by the Iran war with lower income regions set to be hit hardest, according to a report.
The Item Club’s latest regional outlook warns that two of the UK’s lowest income regions – South Wales and the Humber – will suffer the most painful jobs market woes in the next year or so because of sharp energy price rises.
They are heavily reliant on manufacturing and construction industries, which Item Club cautions will shed jobs in response to higher costs and supply disruption from the Middle East conflict.
The report is predicting jobs to drop by 5,700 in South Wales and by 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 it forecasts UK employment will decline by 0.4% this year, equivalent to 163,000 job losses on a net basis.
This will be driven by a pull back in consumer spending, the soaring cost of fuel, energy, materials and ingredients, as well as disruption to shipping.
The Bank of England warned late last month the rate of UK unemployment could hit 5.6% this year, up from 5.2% currently, in its more gloomy scenario for the impact of the war.
The Item Club said as households rein in discretionary spending in the face of a surge in the cost of living, the retail and hospitality sector will suffer the biggest slowdown across Britain’s major cities.
The independent forecasting group predicts that employment in London will drop by 25,000 this year as its retail and hospitality sector slows, with a 12,500 reduction in Birmingham, 9,800 drop in Leeds and 6,200 decline in Glasgow.
There may be some bright spots, however, with Cambridge set to see employment growth in 2026, while Belfast and Edinburgh are expected to see relatively limited job losses.
Mr Lyne said: “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.”
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 over 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, such as 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 see these cities left particularly exposed if the Iran war is not resolved soon, the Item Club said.
A 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.”
