London - The rise in the UK unemployment rate to 5% in March, following a brief dip to 4.9%, signals a worrying trend of economic instability exacerbated by the Iran war. This increase, reported by the Office for National Statistics (ONS), threatens to derail Chancellor Rachel Reeves's ambitions for a stable and equitable economy in 2026, highlighting the vulnerability of working-class families to global conflicts.

Reeves's vision of economic and fiscal stability, predicated on falling inflation and interest rate cuts, is increasingly out of reach as the Iran war fuels inflation and undermines business confidence. The human cost of this instability is borne by workers facing job losses and stagnant wages.

The latest ONS data paints a bleak picture for employment. PAYE data from HMRC indicates a loss of 100,000 payrolled jobs (0.3%) in April, marking the third-largest monthly decline since 2014. This precarious situation disproportionately affects low-wage workers and those in precarious employment, further widening the gap between the rich and the poor.

Regular pay, excluding bonuses, grew at a mere 3.4% between January and March, the slowest rate since the height of the COVID-19 pandemic. With inflation rising due to the Iran war, this wage stagnation effectively reduces the purchasing power of working families, forcing them to make difficult choices between necessities.

The private sector fares even worse, with regular pay growth at just 3%. While some economists suggest this might prevent a wage-price spiral, it is a hollow victory for workers struggling to make ends meet. The focus should be on ensuring fair wages that keep pace with inflation, rather than suppressing wage growth at the expense of workers' living standards.

The Bank of England's Monetary Policy Committee (MPC) faces a difficult decision on whether to raise interest rates. While Sanjay Raja of Deutsche Bank believes the unemployment data may stay their hand, any decision must prioritize the needs of working families over abstract economic targets. Raising interest rates could further exacerbate unemployment and financial hardship.

For Reeves and Keir Starmer, these figures represent a profound challenge. While international bodies like the IMF may offer approval, the true test of economic success lies in improving the lives of ordinary people. Rising unemployment and stagnant wages demonstrate a failure to protect vulnerable populations from the economic fallout of geopolitical events.