Reacting to the latest labour market data from the ONS, David Bharier, Head of Research at the British Chambers of Commerce, said:

“With unemployment at 5.2% for the quarter, and expectations it will continue to rise, there are clear signs that pressure is growing on the labour market. Our latest forecast expects it to climb to 5.5% this year.

“Three major factors could shape the outlook: high and rising labour costs, the proliferation of AI, and growing uncertainty caused by the conflict in Iran.

“Labour costs remain the biggest cost pressure for businesses, cited by 72% in our latest quarterly survey. Last year saw a significant increase in employment NICs, and firms now face additional regulatory pressures as the Employment Rights Act comes into force.

“Targeted initiatives such as the Jobs Guarantee and Youth Jobs Grant show the government recognises the risks, but for many firms the basic barrier is the overall cost of employment.

“Our latest research, released today, shows that most SMEs are not looking to decrease headcount as a direct result of AI. But a smaller group, of around one in ten SMEs, with deeper AI integration are more likely to expect workforce reductions in the coming months. This could add to unemployment over time.

“At the same time, the conflict in Iran is set to drive higher inflation and weaker growth, raising the risk of stagflation if it is not resolved quickly.”

More detail on the labour market data can be found here.