UK Employment Forecast 2026: 163,000 Jobs Threatened as Iran Conflict Disrupts Supply Chains

UK employment is forecast to shrink by 163,000 jobs in 2026 as the Iran conflict ripples through global supply chains, with South Wales and the Humber among the areas expected to suffer the sharpest losses, according to new analysis by the EY Item Club.

The warning comes as the economic shock from the war in the Middle East feeds into higher energy prices, shipping disruption and rising costs of key materials.

The independent forecasting group's latest regional outlook suggests that the pressure will fall unevenly across the country, with lower-income regions and energy‑intensive industries taking the biggest hit while better‑off, knowledge‑based local economies are more insulated.

Iran Conflict Jobs Shock Set To Hit UK's Industrial Heartlands

The Item Club expects overall UK employment to fall by 0.4% this year, equivalent to 163,000 net job losses. That may sound like a modest percentage shift, but in labour market terms it is a sizeable step backwards, and the geography of the pain is highly specific.

South Wales and the Humber, both heavily reliant on manufacturing and construction, are singled out as particularly exposed. The report forecasts employment will fall by 5,700 in South Wales and 2,800 in the Humber during 2026 as energy‑hungry factories and building firms respond to soaring fuel and input costs.

Tim Lyne, economic adviser to the Item Club, said that '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.' He added that households in these areas typically hold smaller financial buffers, which means any shock to pay packets quickly feeds into weaker spending on retail and hospitality.

In other words, the damage does not stop at the factory gate. Once jobs start to disappear in industrial plants or large construction projects, nearby high streets lose customers, and service workers become vulnerable too. The Iran conflict's job impact is not simply a story about tankers in the Gulf; it is about shop staff in Newport, bar workers in Grimsby, and delivery drivers in Doncaster.

Iran Conflict Jobs Impact Spreads To Cities And Consumer Sectors

The Bank of England has already flagged the risk that unemployment could climb from 5.2% to 5.6% this year under a more pessimistic scenario for the fallout from the war. The Item Club's numbers sit squarely within that concern, pointing to a broad softening in the labour market rather than a sector‑specific downturn.

Consumer‑facing industries are expected to be among the worst hit. As households reallocate more of their budgets to essentials such as food, fuel and energy bills, non‑essential spending is the first to go. The report suggests retail and hospitality will see the steepest slowdown across Britain's major cities, a pattern that tends to show up initially in reduced hours, temporary contracts not being renewed and slow hiring rather than mass headline‑grabbing closures.

London, usually the labour market's shock absorber, is not immune. Employment in the capital is forecast to fall by 25,000 this year, largely because of weakness in retail and hospitality. Birmingham is expected to lose 12,500 jobs, Leeds 9,800 and Glasgow 6,200. These are large urban economies with diverse sectors, yet the squeeze on discretionary spending appears strong enough to cut across that diversity.

The Item Club does identify pockets of resilience. Cambridge is projected to see employment growth in 2026, with its tech‑focused economy described as relatively shielded from the worst of the energy shock. Belfast and Edinburgh are also predicted to see only minor job losses, helped in part by the stabilising effect of publicly funded roles.

Lyne said that '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.' By contrast, he pointed to Cambridge as an example of where the tech sector could underpin resilience.

Low-Income Households Face A Double Strain

The report warns that the Iran conflict is likely to widen existing gaps in living standards. Low‑income households in regions such as South Wales and the Humber devote a larger share of their budgets to essentials, precisely the categories seeing the steepest price rises. They are also more dependent on the very sectors now trimming headcount.

Publicly funded services offer some counterweight. Education, public administration and health and social work are all expected to add jobs over the year, but not in sufficient numbers to offset losses elsewhere. That imbalance raises the prospect of sharper divides between places with strong public‑sector or tech‑led labour markets and those still built on heavy industry and big construction.

A government spokesperson pointed to recent data indicating that unemployment had fallen below 5% at the beginning of the year, with 332,000 more people in work than a year earlier. '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,' the spokesperson said.

Ministers insist they are moving to cushion the impact, including a pledge to cut energy bills by up to 25% for 10,000 manufacturers and to press ahead with a mission for 'clean power by 2030' intended to reduce exposure to fossil fuel price swings over time.

How far that support can offset a 163,000‑job squeeze triggered by an international conflict is, for now, an open question. The forecasts are just that, and nothing is confirmed yet — but for workers in Britain's industrial heartlands, the warning signs are uncomfortably clear.