Britain faces the prospect of unemployment climbing above two million for the first time in over a decade, according to new forecasts from the Item Club.
The influential economic research group predicts the jobless rate will jump from 5.2 per cent to 5.8 per cent next year as the Iran conflict batters an already fragile economy.
Such a rise would push the number of people out of work from 1.87 million currently to more than 2.1 million, a level not witnessed since 2014.
The Item Club’s projections carry particular weight because its economists employ the same forecasting model used by the Treasury, suggesting Chancellor Rachel Reeves will likely receive similarly bleak assessments from her own officials.
The Item Club warned Britain is “flirting with recession” this year, with economic growth expected to stall completely during the second and third quarters of 2026.
Matt Swannell, the group’s chief economic adviser, said: “The recent spike in energy prices and disruption to supply chains will be the biggest jolt to the jobs market since the pandemic.
“Faced with higher costs and soft demand, we think businesses will reduce headcount, causing almost 250 thousand more people to become unemployed.
“Spiralling energy costs and disruption to supply chains will push the UK to the brink of a technical recession in the middle of this year.”
UK unemployment forecast to hit 2.1 million as Item Club warns of recession risk
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Consumer spending power will be eroded while costlier financing and global uncertainty will dampen business investment, according to the forecasters.
The Chancellor is convening a meeting with the heads of Britain’s largest banks on Wednesday to address the economic fallout from the conflict.
Executives from Barclays, Lloyds, NatWest, HSBC and Santander will attend the discussions, Sky News reports.
The talks will focus on how the war is affecting both household and business finances amid surging energy costs and supply chain problems.
The Chancellor took aim at the Iranian conflict
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Ms Reeves has been outspoken in her criticism of the US-led conflict, describing Donald Trump’s war with Iran as a “folly” and a “mistake”.
Prime Minister Sir Keir Starmer has argued American actions demonstrate the need for Britain to forge closer economic ties with European partners.
Consumer confidence has plummeted at the fastest pace since Russia’s invasion of Ukraine in 2022, a separate Deloitte survey has revealed.
Households report growing pessimism about their disposable income, job security, career prospects and their children’s welfare, the quarterly research found.
Céline Fenech, UK consumer products insight lead at Deloitte, said: “The impact of recent geopolitical events on the price of energy will likely feel like another setback for consumers.”
She added that many families were already struggling with squeezed budgets at the start of the year due to slowing wage growth and a cooling labour market.
The Item Club expects living standards to fall by 0.3 per cent this year as price rises outpace earnings.
A Treasury spokesman said: “The war in Iran was not of our making but it is imposing costs on the UK economy.
“That is why we are taking the right, fair and necessary action to protect families and businesses.”