Britain is expected to lose 163,000 jobs this year amid economic problems caused by the Iran war and lower-income regions will be hardest hit, 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 labor market problems over the next year due to sharp increases in energy prices.
They rely heavily on the manufacturing and construction industries, which Item Club warns will shed jobs in response to higher costs and supply disruption due to the Middle East conflict.
The report predicts jobs will decline by 5,700 in South Wales and 2,800 in the Humber during 2026.
Tim Lyne, economic adviser at the Item Club, said: “Some of the lowest-income regions will feel the greatest effects of workforce reductions in the manufacturing and construction sectors amid rising energy prices and supply chain disruption.
“While consumers in these areas generally have less rainy day savings, which will reduce spending in the retail and hospitality sectors.”
Overall, it forecasts that UK employment will decline by 0.4% this year, equating to 163,000 net job losses.
This will be driven by a reduction in consumer spending, the rising cost of fuel, energy, materials and ingredients, as well as the disruption of shipping.
The Bank of England warned late last month that the UK unemployment rate could hit 5.6% this year, up from 5.2% now, in its bleakest scenario for the impact of the war.
The Item Club said that as households rein in discretionary spending amid a rise in the cost of living, the retail and hospitality sector will suffer the biggest slowdown in Britain's major cities.
The independent forecasting group predicts employment in London will fall by 25,000 people this year as its retail and hospitality sector slows, with a reduction of 12,500 in Birmingham, 9,800 in Leeds and 6,200 in Glasgow.
However, there may be some bright spots, with Cambridge expected to see job growth in 2026, while Belfast and Edinburgh are expected to see relatively limited job losses.
Lyne said: “Across the UK, the labor market is set to weaken, but it looks especially fragile in South Wales and the Humber, as they are particularly exposed to manufacturing companies that are experiencing large increases in their materials costs.
“Resilience will come in places like Cambridge, where the tech sector is located.”
The report says that while publicly funded sectors such as education, public administration and human health and social work are expected to hire more jobs during 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 increases in the cost of living, as more of their spending goes towards essential items, such as food, fuel and energy bills, which will see large price increases.
Households in cities such as Newcastle, Belfast and Birmingham spend up to 13% of their disposable income on energy and food, compared to less than 9% for the average household in London, the report said.
This could leave these cities particularly exposed if the Iran war is not resolved soon, the Item Club said.
A Government spokesperson said: “Recent figures show there was an improvement in the labor market at the start 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 will probably affect prices and employment in the coming months.
“We will do everything we can to support the country during this period, including cutting energy bills by up to 25% for 10,000 manufacturers.
“Our mission to achieve clean energy by 2030 will take us off the rollercoaster of fossil fuel prices and reduce bills for businesses and households forever.”
