Rachel Reeves nightmare as UK ‘to lose 163,000 jobs’ | Politics | News

According to the report, 163,000 people are expected to lose their jobs in England this year, and low-income regions are expected to be most affected by this situation. Economic forecasting group The Item Club has shared its latest outlook, warning that employment in the UK will fall by 0.4% this year, equivalent to a net loss of 163,000 jobs.

As Rachel Reeves’ economy grows 0.5 per cent in early 2026 and public borrowing declines, critics point to rising tax burdens, stagnant sectors and a high “tax wedge” hitting employment costs. The tax wedge is the difference between the total cost to an employer of hiring a worker and the amount that worker takes home in net wages. In Britain, this wedge rose 2.45% last year, according to the OECD. He said Britain’s taxes on workers were rising the fastest among its 38 members.

This follows changes made in the Chancellor’s Autumn Budgets, in which the rate of National Insurance contributions (NICs) paid by employers increased and income tax thresholds were frozen until 2030.

According to Item Club, job losses will result from declines in consumer spending, rising fuel, energy, material and supply costs, as well as transportation disruptions.

The Bank of England warned late last month that the UK unemployment rate could rise to 5.6% this year from the current 5.2% in a more bleak scenario. Item Club said that the biggest slowdown in Britain’s major cities will be experienced in the retail and accommodation sectors as households rein in discretionary spending in the face of an increase in the cost of living.

The independent forecasting group predicts employment will fall by 25,000 in London this year, 12,500 in Birmingham, 9,800 in Leeds and 6,200 in Glasgow as the retail and hospitality sector slows.

The Item Club also warned that two of England’s lowest-income regions – South Wales and the Humber – will experience the most painful labor market difficulties next year due to sharp rises in energy prices.

They are heavily reliant on the manufacturing and construction sectors, and the Item Club warns that employment will decline in response to high costs and supply disruption resulting from the Middle East conflict. The report predicts that jobs will fall by 5,700 in South Wales and 2,800 in the Humber by 2026.

Tim Lyne, economic advisor at the Item Club, said: “The job market across the UK will soften, but it looks particularly vulnerable in South Wales and the Humber, with manufacturing businesses particularly exposed to those seeing huge increases in material costs.

“Resilience will come to places like Cambridge, where the tech sector is based.”

While publicly funded sectors such as education, public administration, human health and social care are expected to create more jobs during the year, this will not be enough to offset larger losses, the report said.

It also warns that there is a widening gap in living standards across the UK. Households in low-income areas will experience the highest increases in the cost of living as a larger share of their spending is spent on basic needs such as food, fuel and energy bills, which will see large price increases.

According to the report, households in cities such as Newcastle, Belfast and Birmingham spend 13% of their disposable income on energy and food; this is less than 9% for the average household in London.

Mr Lyne said: “Some of the lowest income areas will feel the biggest impacts of the manufacturing and construction sectors reducing headcount in the face of rising energy prices and supply chain disruption.

“This will reduce spending in the retail and hospitality sectors, although consumers in these areas typically have less savings on rainy days.”