Emeritus Professor Joe Nellis is economic adviser at MHA, the accountancy and advisory firm.

Unemployment has risen from 4.9% to 5% in the three months to March — a rise that will intensify fears of an economic slowdown. Despite promising growth figures in the first quarter and the IMF upgrading its forecast for UK growth for 2026 from 0.8% to 1%, this rise delivers the clearest warning yet that pressure is set to mount across the economy.

At the same time, average earnings growth excluding bonuses has eased to 3.4%, its lowest level since 2020, suggesting that the labour market is weakening from both directions: fewer jobs and weaker pay momentum.

Businesses are now facing weaker demand, higher borrowing expenses and surging energy bills. Recruitment is slowing, expansion plans are being delayed, and in some sectors, job losses are beginning to emerge.

The biggest concern is that unemployment tends to accelerate once it starts rising. A move to 5% may signal the start of a more serious deterioration later this year if economic conditions continue to weaken.

Particularly alarming is the rise in youth unemployment, which continues to hover close to 16%. Younger workers are once again bearing the heaviest burden of economic uncertainty. Opportunities in retail, hospitality and entry-level professional roles are drying up fast, prompting worries that many young people could be locked out of the labour market altogether. That has long-term consequences not only for growth but also for social mobility, productivity and public spending.

The worsening international backdrop is adding to the strain caused by domestic policy. The ongoing Middle East crisis is driving up energy and transport costs, squeezing already fragile business confidence and increasing the risk of another inflation shock.

For the Bank of England and the government alike, these figures are deeply uncomfortable. A weakening labour market threatens tax revenues, increases welfare pressures and heightens the risk that the economic slowdown becomes far more entrenched.