UK firms cut jobs at fastest pace this year as Iran war hits economy

Redundancies are rising and recruitment is falling, according to the research

Businesses cut jobs at the fastest rate in 2026 as employers also resisted awarding staff substantial pay rises throughout March, according to new research, laying bare the Iran war’s impact across all areas of the UK economy.

A study by the Recruitment and Employment Confederation (REC) and KPMG revealed a sharper increase in the number of job seekers over March.

The growing availability of candidates was driven by rising redundancies and widespread job scarcity, researchers found, leaving the UK labour market vulnerable to further damage from the Iran conflict as its consequences filter through in the weeks ahead.

Analysts indicated that high street retailers were the worst affected, with retail and hospitality “struggling” amid challenging conditions on labour costs and weakening consumer demand.

The permanent placements index, which tracks the number of people in full-time positions, showed a marginal improvement on the previous month but continued to signal a contraction in employment, as reported by City AM.

Temporary recruitment also declined at a slower pace than in March, while the number of vacancies fell across both the private and public sectors.

Employment figures for March may leave economists and policymakers in a difficult position, with the data failing to show any significant departure from trends observed over several months.

Nevertheless, concerns are mounting that instability in Middle Eastern trade could unsettle businesses over the coming months, with the broader jobs market already grappling with rising unemployment and a prolonged drop in vacancy numbers.

REC chief executive Neil Carberry suggested the Labour government’s cost of living agenda could be bolstered by addressing “the rising cost of doing business”.

“The Gulf Conflict provided a headwind to hiring in March but this did not stop the trend of stabilisation that has defined 2026 so far,” Carberry said.

“Business prospects for 2026 remain finely balanced, and confidence will be key. Households and businesses are still sitting on cash that might be put to work in the economy if the climate is right, boosting growth and particularly helping struggling consumer-facing sectors.”

Figures gathered by the two organisations also revealed that starting salaries grew at their slowest pace in five months, indicating that wage growth is beginning to ease.

Bank of England rate-setters keep a close eye on pay growth levels amid fears that elevated inflation could push wages higher, triggering a spiralling effect on price increases.

Subdued demand resulting from higher unemployment and the threat of recession could further strengthen the argument for interest rate cuts, helping to alleviate financial pressures on both households and businesses.