The U.K.’s standing as one of the fastest-growing OECD countries in the first quarter is already old news by now as the oil shock continues to rattle the economy. The most recent labor market report shows a clear deterioration in the economic outlook along with a rising unemployment rate, falling vacancies, and declining payroll employment. While the preliminary data for the month of April needs to be treated with caution, the direction of travel is clear: further job losses are on the horizon as the conflict with Iran leads to rising prices and dampened economic activity. Meanwhile, a weakened Starmer government is heightening political uncertainty to such a degree that the political crisis is now spilling over into financial markets and is affecting the domestic economy as well.
Good economic momentum in the first quarter is old news
Somewhat surprisingly, the U.K. economy eked out a quarterly growth rate of 0.6% in the first quarter of this year, making it one of the fastest-growing OECD economies early in 2026. However, two notes of caution. First, strong first-quarter performance has been a recurring pattern, having some of us wonder whether there is something wrong with the seasonal adjustment method used by the Office for National Statistics (ONS). Second, economists widely expect the rest of the year to be extremely weak, given how the global oil price shock is unfolding. The International Monetary Fund (IMF) is now projecting 1% GDP growth for the U.K. for 2026, meaning that the second through fourth quarters will see near-stagnation.
Unemployment up, vacancies down
The decline in the unemployment rate to under 5% at the beginning of the year struck us as slightly unrealistic and inconsistent with where the labor market was heading — and sure enough, the latest data shows that unemployment is back at 5%.
Meanwhile, vacancies continue to fall — down by 7% on the year and at their lowest level since early 2015. It is abundantly clear that labor demand has taken yet another hit due to the global oil price shock. Companies are pausing hiring as economic momentum is slowing considerably, with some sectors being significantly more affected than others.
For now, retail and hospitality are showing the largest declines in employment, with both sectors down by more than 100,000 jobs since mid-2024. Successive minimum wage increases paired with tax hikes are mostly the reason, but with oil prices through the roof, both sectors will continue to suffer as consumer spending retreats.
Massive job losses, but beware of data revisions
The payroll employment data shows that roughly 100,000 payroll jobs have been lost in April alone, putting the cumulative decline since mid-2024 at about 200,000. However, last month’s data is preliminary and certainly inaccurate, as the ONS itself cautions. Payroll figures are always more unreliable at the beginning of the tax year.
Furthermore, every month showing significant job losses has been revised upward — and often by a significant amount. Based on recent historical data, we might end up with job losses in April being somewhere in the range of 10,000 to 30,000, which would be bad enough.
Real wages are heading toward stagnation again
Following more than two years of decent inflation-adjusted pay gains with nominal wage growth exceeding the rate of inflation by several percentage points, workers are now experiencing a more challenging environment again. While currently just below 3%, inflation is expected to accelerate to about 4% in the coming months. Pay gains, on the other hand, are heading in the opposite direction — private sector wage growth is already closer to 3%, while public sector wages are still growing at a rate of more than 5%.
While the decline in wage growth is good news from a monetary policy perspective — reducing the risk of a wage-price spiral — it will weigh on consumption as households are seeing their paychecks being eroded by rising prices.
A potential leadership contest is rattling financial markets
On top of everything else, the U.K. is also suffering from significant domestic political turmoil, which is now starting to weigh on economic activity. Following Labour’s heavy election losses in early May, culminating in the resignation of several ministers, Prime Minister Starmer’s government is weakened to such an extent that a leadership contest this year can no longer be ruled out.
Financial markets are rattled by the prospect of Andy Burnham, current mayor of Manchester, becoming the next U.K. prime minister — prediction markets give him a more than 40% chance of succeeding Starmer this year. Burnham, a pro-regulation and pro-government-spending candidate on the left, is regarded by the City as a greater evil than the current Labour government.
With U.K. debt approaching 100% of GDP and government interest rate expenses exceeding 100 billion pounds each year (more than 3.5% of GDP), it is hard to see how Burnham’s policies can be successfully implemented without financial markets freaking out even more. Current borrowing costs are already spiking in anticipation that Starmer won’t be making it to the end of the year.
Instead of Singapore, it’s more like Rome on the Thames. The “Italianization” of British politics is another factor creating domestic uncertainty and even weighing on the government’s finances — both bad news for economic activity and the hiring outlook this year.
What does this mean for recruiters?
There is no doubt that the U.K. economy is slowing again. While not showing up in the GDP data yet, the direction of travel is clear. The oil shock is creating inflationary pressures, squeezing consumers and businesses alike. Central banks are tightening monetary policy, which is leading to a further decline in economic activity. Furthermore, the domestic political turmoil is causing interest rates to rise, putting pressure on the government budget. As companies expect an even more challenging economic environment throughout the coming quarters, they are putting recruitment on hold. Job losses might accelerate in the coming months until economic momentum and morale improve. Do not expect hiring to pick up throughout the summer. As such, 2026 continues to be a very challenging year for jobseekers due to a stagnant labor market.
