The UK unemployment rate may have fallen to 4.9%, but the latest labour market data paints a far more fragile picture beneath the surface. Falling payrolls, slowing wage growth and fresh inflation risks linked to conflict in the Middle East are set to heap further pressure on households, businesses and the Bank of England in the months ahead.
With policymakers also braced for another inflation test, the figures underline how quickly a softer jobs market could become a broader economic concern.
Industry professionals are reacting to the latest figures below:
Jonathan Raymond, investment manager at Quilter Cheviot:
“While last week’s data revealed the economy bounced back more than had been expected in February, the same cannot be said of the labour market. In a continuation of its disappointing start to the year, the jobs market saw a 74,000 in the number of payrolled employees between February 2026 and the same month last year. Quarter on quarter, payrolled employees fell by 9,000, and by 87,000 over the year.
“Unemployment has surprised slightly, coming in at a slightly more palatable 4.9% in February compared to 5.2% reported last month. Meanwhile, annual wage growth came in slightly lower but remains above inflation at 3.6% for regular earnings excluding bonuses and 3.8% for total earnings including bonuses in December 2025 to February 2026.
“The initial estimates for March are also downtrodden, with employee numbers expected to drop by a further 65,000 on the year, with a high likelihood of further revisions. Given today’s data does not capture the initial impact of the conflict in the Middle East, we can expect the labour market to soften even more from here on out. Businesses have had hiring plans largely on hold since before the budget, and many will have swiftly put the brakes on again at the outbreak of the war. When combined with other factors including ongoing wage pressures, national insurance increases and changes to business rates, it is difficult to see the labour market making a swift recovery any time soon.
“The Bank of England’s monetary policy committee will reconvene next week to deliver its next interest rate decision, and today’s data, as well as what is expected to be an unpleasant inflation print tomorrow, will only further cement expectations for a hold. The conflict in the Middle East has seen energy prices soar, and the full effects will take some time to feed through, adding a fresh inflation risk and complicating the Bank’s decision-making process. It will soon have to make a call on how much it looks through any inflation spike and look instead to potential growth implications.”
Luke Bartholomew, Deputy Chief Economist, at Aberdeen said;
“While the sharp drop in unemployment reported today is certainly eye catching, it will probably be largely dismissed by the market. That’s partly because it only covers a period up to the end of February, so before the Iran conflict, and also because it largely seems to reflect rising inactivity rather than stronger hiring. Indeed, the timelier payrolls data, which covers March and so should capture some of the early impact of the war, remains weak, falling once again. Meanwhile, with cash wages continuing to moderate and inflation set to increase sharply in the coming months, it is likely households are about to experience another period of negative real wage growth, which will weigh further on growth. Tomorrow’s inflation data will help give a sense of how quickly the energy price shock is working its way through the economy, but unless there is a much larger and broader than expected surge in price pressures, then the Bank of England will likely keep rates on hold later this month.”
Scottish Friendly’s savings expert Kevin Brown says:
“Falling wage growth, albeit modest, will be welcomed by the Bank of England, especially at a time when global energy costs are rising due to tensions in the Middle East.
“That said, today’s news will do little to alter the course of interest rates. The broader environment remains too uncertain, and the Bank’s rate-setters will want to avoid doing anything that will stoke inflation or pile unnecessary pressure onto an already fragile economy.
“While the jobs market has proven fairly resilient of late, it is showing signs of strain. If geopolitical tensions persist, unemployment is likely to rise considerably, which would further complicate the outlook for interest rates.
“For savers, the environment remains supportive in the short term, but households should not assume it will last. Protecting cash returns and considering longer-term investment strategies remains sensible in an uncertain inflation backdrop.”
Rob Morgan, Chief Investment Analyst at Charles Stanley, part of Raymond James Wealth Management comments:
“The UK jobs market delivered a mixed picture in February. The headline unemployment rate fell to 4.9% from 5.2%, but this largely reflects a rise in economic inactivity rather than a meaningful increase in employment.
“That headline masks a weaker underlying trend. The number of payrolled employees fell in both February and March, pointing to a more cautious stance among employers. Vacancies also dipped to their lowest level in nearly five years, reversing a period of stabilisation and reinforcing the sense that demand for labour is cooling.
“Much of the data is already backward-looking, capturing conditions before the latest economic shock linked to the Iran conflict. The recent escalation in the Middle East has injected significant volatility into markets, disrupting oil and energy prices, transport routes and global supply chains. These developments are expected to weigh on business and consumer confidence in the months ahead, with knock-on effects for hiring and employment.
“Even for those in work, conditions are becoming more challenging. A renewed cost-of-living squeeze is building just as wage growth is slowing sharply. Average pay growth has eased to 3.6%, its weakest since the pandemic. As a result, real wage growth – pay rises adjusted for inflation – is now contracting and could even turn outright negative later this year.”
Danni Hewson, AJ Bell head of financial analysis, comments:
“Today’s jobs data follows hot on the heels of February’s GDP figures and shows the UK economy seemed to have dusted itself off after a difficult end to 2025, as businesses dealt with increased costs of keeping workers on the books and all the speculation ahead of the chancellor’s second Budget.
“Unemployment fell back from its five-year high in the three months to February, but it’s impossible to know whether this was a real turning point for the UK economy or simply a post-Budget boost.
“The Iran war has changed the playing field and the associated energy price shock and fears over supply issues are set to rekindle inflation and push companies to rethink their hiring intentions and potentially cut staff. That’s expected to push the unemployment number back up, potentially peaking around 5.8%.
“Even though February’s figures were broadly positive, if you look under the bonnet the weakness in the labour market hadn’t really gone away. Hiring remained sluggish and the data suggested fewer students have been looking for a job to run alongside their studies – potentially a reaction to the dearth of jobs available for younger workers.
“Wage growth has also continued to ease off, now at its lowest rate in over five years, something which Bank of England rate setters had been particularly focused on. The MPC is expected to hold fire on making changes to the UK base rate when it meets next week as it waits to understand how prices are going to be impacted by events in the Middle East, but markets are expecting the next move will be a hike rather than the cut that had been widely anticipated before the start of the war.
“The last time the Bank faced the decision to hike rates to combat rising inflation, the UK jobs market was in a very different place, with vacancy numbers boosted by a post-pandemic hiring spree. Now vacancies have fallen to a five-year low and that’s only expected to get worse once the full impact of rising prices takes hold.”
Susannah Streeter, chief investment strategist, Wealth Club, said:
“The latest snapshot of the UK labour market paints a picture of an economy that had been showing signs of more resilience just before the Iran crisis cast a long shadow over the outlook. Employers were taking on more full-time workers, pushing the unemployment rate down to 4.9%, a sign that demand for labour had been holding up better than expected.
There were tentative signs that confidence had been stabilising, as the cloud of uncertainty around the Budget and potential tax rises began to lift. Pay growth came in slightly stronger than anticipated, with average weekly earnings, including bonuses, rising 3.8% year-on-year. Although that marks a slowdown from the previous 4.1%, it still indicates that wage pressures haven’t faded away entirely. Taken together with better-than-expected growth of 0.5% in the three months to February, the data suggests the UK economy had been regaining some momentum.
However, that progress now looks increasingly fragile. Just as companies appeared to be rediscovering their mojo, the escalation in the Middle East and the renewed threat to energy supplies risk sapping confidence once again. So, more hiring plans may be shelved and investment suspended as bosses turn ultra-cautious about the unfolding events.
For policymakers, the easing in wage growth had been keeping hopes of interest rate cuts alive, with pay pressures no longer ringing alarm bells at the Bank of England. But the surge in energy prices and heightened geopolitical uncertainty are raising the prospect that borrowing costs may need to be increased to calm an incoming inflation storm. One interest rate hike is still being priced in by financial markets, and Bank officials are staying wary about how fresh price pressures will emerge. The concern now is that just as the UK economy was beginning to steady itself, a fresh external shock could knock it off course.
However, hopes are being kept alive for a potential deal to emerge which could limit the economic damage, as Pakistan prepares to host fresh negotiations Even though Donald Trump is still threatening to resume strikes, the key Strait of Hormuz remains blocked, and Iran has not confirmed its sending a delegation to the talks, there are expectations that some kind of deal will be reached. However, for now, a ‘wait-and-see’ mood is swirling, with the FTSE 100 flat in early trade while Brent crude is in a holding pattern, trading around $95 a barrel.”
Harry Hobbs, Head of Business Intelligence at Baltic Apprenticeships, says:
“The latest ONS figures suggest the labour market remains constrained as economic pressures and wider global uncertainty continue to weigh on employers’ minds. There is no doubt that it remains a difficult job market for candidates, particularly those at the start of their careers.
“Youth unemployment remains a major talking point, with vacancies at their lowest level since 2021. Competition for entry-level opportunities is intense, and employers are placing greater scrutiny on recruitment decisions that are expected to deliver long-term value.
“In that environment, apprenticeships can play an important role by giving employers a structured way to identify talent, build capability and support retention over time. But the focus cannot just be on access. It also needs to be on the quality of those opportunities. For employers, that means investing in programmes that are well-supported, aligned to real business needs and capable of delivering lasting value, rather than simply filling vacancies in the short term.”
Katie Horne, UK savings market expert at Flagstone, has shared her insights:
“It is extraordinary to consider the contrast between the upbeat economic climate at the start of the year and the realities of an unpredictable geopolitical rollercoaster that’s now engulfing the world.
“Despite today’s dip, unemployment remains at highs not seen since the fallout from Covid and this high rate is bound to continue to dent business confidence. A persistently stubborn inflation rate will exacerbate affordability concerns. The outlook for businesses will only worsen if borrowing costs remain high and access to finance remains tight, resulting in less hiring, investment and growth.
“Consumers have been facing a barrage of financial pressures with no end in sight, as if the post-pandemic cost of living crisis has transitioned from temporary emergency to permanent state.
“Research by Flagstone and Opinium found that at the end of 2025, three in ten (29%) UK adults had less money left after bills and essential spending than they expected at the start of the year. 68% of these adults cited higher-than-expected everyday costs as the primary cause. 48% believe it to be the case because their household’s income did not increase in line with increasing living costs, and 31% spent more than expected on essential expenses.
“A ray of light for savers in this geopolitical turmoil is that higher inflation may mean the Bank of England increases the base rate and therefore banks will raise the rate of interest on their savings products.
“A proactive approach to managing your cash savings will give you the best chance of maximising returns on your money while minimising your risk exposure by making sure your savings are covered by the Financial Services Compensation Scheme.
“Whether you’re managing your own spare cash or cash reserves, taking stock of your savings accounts and maximising the rates you can access is time well spent.”
Peter Richmond, Sales Director at Welcom, comments:
“The latest ONS figures showing UK unemployment at 4.9% in the three months to February mask a more fragile reality in the labour market. The headline rate is being supported more by people leaving the workforce than by genuine job strength, with hiring demand clearly softening and vacancies continuing to fall. This is reflective of a cooling job market rather than a resilient one.
For the mortgage and lending sectors, that shift matters. It means more variability in income stability, tighter affordability assessments, and growing pressure on lending decisions as confidence becomes harder to anchor.
In this environment, technology becomes critical. Lenders and advisers increasingly need real-time data, automation, and more adaptive affordability models to make faster and more accurate risk decisions as conditions become less predictable.”
