The unemployment rate in the U.K. has unexpectedly risen in the first quarter, as vacancies slumped to their lowest level in five years amid a sharp pullback in hiring across under-pressure retail and hospitality sectors, according to official figures on Tuesday.
The jobless rate rose to 5% in the three months to March, up from 4.9% in the three months to February, said the Office for National Statistics (ONS).
Most economists had expected the rate to remain unchanged.
The ONS estimated the number of workers on U.K. payrolls also slumped by 100,000 during April to 30.2 million, which is the largest fall since May 2020 at the start of the COVID-19 pandemic, although these figures are subject to revision.
It said vacancies dropped by 28,000 quarter-over-quarter to 705,000 in the three months to April, which is the lowest level since the same period in 2021.
Retail and hospitality firms saw some of the largest falls in payroll numbers and vacancies, with the ONS saying firms in the sectors were flagging "economic and geopolitical uncertainty" as reasons to halt hiring.
Regular earnings growth, meanwhile, also fell back further, to 3.4% in the first quarter, down from 3.6% in the three months to February and the lowest level since October 2020, only just outpacing Consumer Prices Index (CPI) inflation by 0.3%.
Liz McKeown, ONS director of economic statistics, said: "Latest figures suggest the labor market remains soft, with vacancies at their lowest level in five years and unemployment higher than a year ago."
She added: "Lower-paying sectors such as hospitality and retail have seen some of the largest falls in vacancies and payroll numbers, both in recent months and over the last year."
The figures follow recent warnings over rising unemployment as a result of the inflation shock caused by the Iran war and the impact on consumer spending and the wider economy.
The Bank of England (BoE) last month predicted that even in its most positive forecast, unemployment would hit 5.5% in 2027, with this increasing to 5.6% in a more extreme impact scenario.
Retail and hospitality firms are seen as being particularly exposed, having already been hit with soaring labour costs in recent years.
The ONS said retail vacancies were down 7,000 quarter on quarter in the three months to April while they were 11,000 lower for hospitality.
The number of payroll workers in the sectors were also sharply lower, with retail estimated to be down 76,000 year-on-year in April and hospitality seeing a 75,000 drop.
This is having a major impact on young workers, who traditionally find work in those sectors, with the ONS revealing the rate of unemployment among 16 to 24-year-olds jumped to 16.2% in the three months to March, marking the highest level since 2015.
Work and Pensions Secretary Pat McFadden stressed the latest figures also showed 416,000 more people in work than a year ago.
"While this is encouraging, we know the conflict in the Middle East is casting a shadow on the labor market," he said.