Britain is staring down the barrel of a jobs bloodbath, with unemployment poised to smash through the two million mark for the first time since the mid-2010s, all because the Iran war has hammered an economy that was already on its last legs. The highly regarded Item Club, whose economists borrow the Treasury’s own modelling tools, has warned that the jobless rate will climb from 5.2 percent before the conflict erupted to 5.8 percent next year. That would shove the number of people out of work from today’s 1.87 million to more than 2.1 million – a level not seen since 2014, when David Cameron was still in Downing Street and austerity was ripping through public services.
According to Matt Swannell, the club’s chief economic adviser, Britain is now “flirting with recession” this year, and the labour market is about to take the full force of the blow. He pointed out that the recent explosion in energy prices, combined with shredded supply chains, represents the biggest shock to jobs since the pandemic lockdowns wrecked the economy in 2020. Faced with crippling costs and weak customer demand, businesses will have no choice but to slash headcount, he argued, which means nearly a quarter of a million extra people will soon be signing on. The club predicts growth will flatline entirely in the second and third quarters of 2026, leaving the UK dangerously exposed to a prolonged downturn.
Because Item Club uses the same economic model as the Treasury, Chancellor Rachel Reeves can expect her own officials to serve up an equally grim forecast any day now. She has already summoned the bosses of Britain’s biggest banks – Barclays, Lloyds, NatWest, HSBC and Santander – for an emergency meeting on Wednesday, as first reported by Sky News, to discuss how the war is hammering household finances and business balance sheets. Swannell did not mince his words, saying spiralling energy costs and supply chain chaos would push the UK to the brink of a technical recession by the middle of this year. He added that consumers’ spending power will be crushed, while more expensive borrowing and a deeply uncertain global outlook will pour freezing water on any company thinking of investing.
A separate survey from Deloitte paints an equally ugly picture, showing consumer confidence has collapsed faster than at any time since Russia’s full-scale invasion of Ukraine in 2022. Families have turned deeply pessimistic about their disposable income, job security, career prospects and even their children’s education and welfare, the quarterly poll found. Céline Fenech from Deloitte said the impact of recent geopolitical events on energy prices would feel like yet another brutal setback for consumers, many of whom were already seeing their household budgets squeezed by slowing wage growth and a cooling jobs market even before the war began. As a result, households are now slashing discretionary spending and focusing purely on covering essentials like food, heating and rent. Item Club expects living standards to fall by 0.3 percent this year as inflation once again outstrips wage rises, reversing the modest gains seen in late 2025.
Separately, EY has reported a sharp rise in profit warnings during March, with partner Jo Robinson of EY-Parthenon warning that the war will overlap with existing business challenges and amplify the strain on corporate earnings for some time to come. All these dire forecasts are especially frustrating for Reeves given that official data showed GDP grew by 0.5 percent in the three months to February – better than expected – suggesting the economy was on a firmer footing before the Iran conflict blew up. Reeves has been scathing about Donald Trump’s decision to go to war with Iran, repeatedly calling it a folly and a mistake, while Keir Starmer has argued that the US action proves Britain must urgently forge a closer economic relationship with European allies rather than relying on Washington’s erratic leadership.
Item Club now predicts full-year GDP growth of just 0.7 percent for 2026 – barely half the rate seen last year. A Treasury spokesman insisted that the latest growth figures show the government has the right plan to build a stronger, more resilient economy, while admitting the war in Iran was not of Britain’s making but is imposing heavy costs. He said the government is therefore taking the right, fair and necessary action to protect families and businesses, though critics will note those same promises were made before the last two crises and did little to stop living standards from cratering.
