Workers are seeing the slowest pay rises in more than five years in a blow to households already facing soaring bills triggered by the war in Iran.

Average wages grew by 3.6pc in the three months to February, according to the Office for National Statistics (ONS). This was the weakest rise since the quarter to November 2020.

Adjusting for inflation, British workers’ pay increased by only 0.2pc.

Slowing wages will raise the pressure on families, as the war in Iran pushes up the cost of living.

The ongoing conflict is expected to drive up food inflation to more than 9pc by the end of the year, according to forecasts by the Food and Drink Federation. Average households energy bills are expected to rise close to £2,000 a year, while petrol and diesel prices have already spiked.

Martin Beck, chief economist at WPI Strategy, said: “Weaker pay growth will compound the squeeze on households from higher energy prices and supply chain disruption linked to the conflict in the Middle East.

“While recent diplomatic developments may limit the worst-case outcomes, a period of falling real wages is still likely in the second half of the year, weighing on consumer spending and, in turn, labour demand.”

The public sector is better protected, with wages still growing by 5.2pc annually compared with a rise of 3.2pc in the private sector.

Unemployment surprisingly fell before the conflict, the ONS said, though it remains the hardest time since Covid to find a job with far more jobseekers than open roles.

The jobless rate fell to 4.9pc in December to February, down from 5.1pc in the previous three months.

Economists said the fall was mainly driven by rising economic inactivity, meaning they are no longer classified as unemployed, rather than more people finding work.

Modupe Adegbembo at Jefferies said: “This apparent improvement was entirely flattered by falling participation rather than stronger hiring. The decline in labour force participation mechanically reduced the unemployment rate, masking continued softness in actual labour demand.”

The number of employees on the nation’s payroll fell by 65,000 in the year to March.

Job losses have been concentrated among younger workers, with 242,000 fewer people under the age of 35 in work since since Rachel Reeves’s maiden Budget in October 2024, ONS figures show. By contrast, there are almost 100,000 more people aged 35 and older employed compared to October 2024.

There are now 2.5 unemployed people per vacancy, which makes it is the toughest time to find work since early 2021.

The number of advertised jobs fell to 711,000 in March, the lowest number in five years. Outside of the pandemic, vacancies are at an 11-year low.

Signs of weakness in the jobs market mean the Bank of England is less likely to increase interest rates, Thomas Pugh, chief economist at RSM UK, said.

Mr Pugh added that we could still see large rises in unemployment this year, despite the recent fall.

He said: “We now think the unemployment rate will probably peak at around 5.5pc. If energy prices rise higher over the summer as supply becomes even more constricted, the unemployment rate could move towards 6pc.”