Two of the UK’s lowest income regions will suffer the most painful jobs market woes in 2026, driven by sharp energy price rises and supply chain disruption from the Iran war, a new report suggests
Britain is set to lose 163,000 jobs this year amid the economic turmoil triggered by the Iran war, with lower-income regions facing the heaviest blow, according to a new report.
The Item Club’s latest regional outlook warns that two of the UK’s poorest regions – South Wales and the Humber – will endure the most severe jobs market difficulties over the coming year or so, owing to sharp rises in energy prices.
Both areas are heavily dependent on manufacturing and construction industries, which the Item Club cautions will cut jobs in response to escalating costs and supply disruption stemming from the Middle East conflict.
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The report predicts employment will fall by 5,700 in South Wales and by 2,800 in the Humber throughout 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, the report forecasts UK employment will contract by 0.4% this year, equating to 163,000 net job losses.
This will be driven by a downturn in consumer spending, rocketing fuel, energy, materials and ingredient costs, as well as widespread disruption to shipping. The Bank of England cautioned late last month that the UK unemployment rate could reach 5.6% this year, rising from the current 5.2%, under its more pessimistic scenario for the war’s impact.
The Item Club stated that as households cut back on discretionary spending amid soaring living costs, the retail and hospitality sector will experience the sharpest slowdown across Britain’s major cities.
The independent forecasting group anticipates that employment in London will fall by 25,000 this year as its retail and hospitality sector weakens, with a 12,500 reduction in Birmingham, 9,800 drop in Leeds and 6,200 decline in Glasgow.
There may be some positive developments, however, with Cambridge projected to see employment growth in 2026, while Belfast and Edinburgh are expected to experience relatively modest 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 stated that while publicly-funded sectors – such as education, public administration and human health and social work – are expected to create more jobs over the year, this will not be sufficient to counterbalance wider losses.
It also cautions over a widening gap in living standards across the UK triggered by the Iran war. Households in low-income areas will face the sharpest increases in the cost of living, as a greater proportion of their expenditure goes towards essentials such as food, fuel and energy bills, all of which are set to experience significant price rises.
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.”
