Turning back to the latest batch of UK labour market figures, which showed an unexpected fall in the unemployment rate – Pat McFadden, secretary of state for work and pensions, said:

These figures show that there was an improvement in the labour market at the beginning of the year with unemployment falling below 5%, and 332,000 more people in work than a year ago.

But we cannot escape the effects of the war in the Middle East which are likely to feed through to prices and employment in the coming months. We will do everything we can to support the country through this period, including by slashing energy bills by up to 25% for 10,000 manufacturers.

And we’re focusing on future proofing and upskilling our workforce through our £2.5 billion investment to get more young people earning and learning alongside personalised support to help sick or disabled people who had previously been written off.”

The UK housebuilder Crest Nicholson has issued another profit warning, hit by rising build costs, higher interest rates and worsening consumer confidence in the wake of the Iran war, and has begun talks with its lenders about relaxing its loan conditions. The news sent its shares 29% lower.

Martyn Clark, the chief executive, said:

It is increasingly clear that the current macroeconomic uncertainty is contributing to the prospect of a more prolonged higher interest rate environment, renewed cost pressures and a deterioration in consumer confidence.”

Following a drop in new enquiries and visitor levels to its sites, Crest now expects to complete 1,400 to 1,500 homes this rather than 1,550 to 1,700 as previously estimated. Build costs have been higher than expected because of higher energy costs, and it anticipates a reduced number of land sales. It has completed one land sale so far, but said:

However, in recent weeks there has been a marked softening in sentiment among prospective land purchasers. Buyers have become more cautious in the face of the uncertain outlook, resulting in reduced engagement in bidding processes and an increased reluctance to transact at market values.”

This has prompted Crest to slash its underlying profit forecast to £5m to £15m this year, from its previous estimate of £42m to 52m, and warned that “as a consequence of lower expected profitability, it is in the early stages of seeking temporary banking covenant relaxation”. Analysts had been expecting a profit of £44m.

The builder now expects net debt of £100m to £120m (previously £15m to £65m) and interest costs of £15m, rather than £10m to £12m. With the Iran war driving oil and gas prices sharply higher, UK inflation is likely to increase, and the Bank of England is expected to raise interest rates in the coming months. Prior to the conflict, economists had been expecting rate cuts.

Anthony Codling, housing analyst at the broker RBC Capital Markets, said:

We don’t expect lenders to withdraw funds, but we expect their ongoing support will come at the price of higher interest costs.”

He said the decision to slow land sales “will hit profits this year, but we agree with the decision not to sell at suboptimal prices, a value over volume approach”. The Surrey-based builder closed a divisional office in December and cut 50 jobs.

Elsewhere this morning, the owner of Primark has confirmed its plan to demerge the fashion chain from the group.

Associated British Foods – which also owns the bread brand Kingsmill and Twinings tea – said it wants to break up its conglomerate structure by the end of 2027, following a five-month evaluation with shareholders.

It means Primark could become a member of the FTSE 100, the UK’s group of blue chip shares, if it joins the stock market.

Dan Coatsworth, head of markets at the broker AJ Bell, said:

For years, ABF said it would never split Primark from the group, arguing that a conglomerate structure provided added benefits. To some extent that is true, as evidenced by ABF regularly having one of its many component parts fall behind and the rest of the group picking up the slack. However, the bigger Primark has got, the stronger the call to let it stand on its own. ABF has finally buckled and pressed the button on the demerger.

…Demerging from a conglomerate parent could lead to faster decision making and freedom to explore new growth opportunities. That could involve expanding into new countries or adding smaller stores in high footfall locations that only stock the most popular items.

…Primark is currently experiencing a few bumps in the road amid tougher market conditions. A prolonged Middle East conflict could exacerbate the situation if the oil price stays higher for longer, leading to cost pressures for Primark and weighing on consumer sentiment. While that suggests uncertainty ahead, investors looking at the demerger will be judging Primark on its long-term growth potential, not the next few months.”

The announcement came as the company reported that group sales fell 2% to £9.46bn in the six months to 28 February and pre-tax profits were down 9% to £632m.

The company said its sugar business performed “below our expectations” and was now expected to report an annual loss, while its grocery business had faced weak trading in the US.

Sales at established Primark stores across the world fell 2.7% in a “difficult clothing market”.

Shares in ABF are down by about 6% this morning.

While the latest figures show a fall in the UK’s unemployment rate, businesses are warning that it is likely to rise overall this year.

Patrick Milnes, head of people and work at the British Chambers of Commerce, said:

While unemployment has seen a surprise fall to 4.9%, the expectation is that it will rise this year as business uncertainty caused by the Iran War overshadows the UK economy.

With the cost of employment also high, and expected to rise as the Employment Rights Act comes into effect, our latest forecast expects unemployment to hit 5.5% this year. The slow-down in wage growth indicates businesses are taking their foot off the gas and the labour market will continue to loosen.

With the conflict in Iran likely to drive higher inflation and weaken growth, the spectre of stagflation is beginning to grow.

This has upended expectations at the start of the year of further interest rate cuts by the Bank of England, increasing the level of uncertainty still further.

The government must move swiftly to show that it understands the problems firms face. Action to ease the cost burdens they face, such as help with electricity bills and reform of business rates would go a long way to demonstrating this.”

Good morning, and welcome to our rolling coverage of business, the financial markets and the world economy.

Unemployment in the UK fell from a post-pandemic high in the three months ended in February, the latest figures show.

The unemployment rate unexpectedly dropped to 4.9% in February, according to figures from the Office for National Statistics – down from 5.2% in the previous quarter.

However, wage growth was meagre, hitting its lowest level since November 2020 at just 3.6% for regular earnings excluding bonuses. Total pay, which includes bonuses, also dropped to a five-year low of 3.8%.

Liz McKeown, director of economic statistics at the ONS, said:

The number of workers on payroll remained broadly flat in recent periods, reflecting ongoing weak hiring.

Vacancies fell to their lowest level in almost five years, but with unemployment also falling the number of vacancies per unemployed person remains broadly unchanged.

Alongside falling unemployment, the number of people not actively seeking work increased, with data suggesting fewer students seeking work alongside their studies.

Regular wage growth has slowed further with growth at its lowest rate in over five years.”

Jonathan Raymond, investment manager at Quilter Cheviot, notes that today’s release does not capture the impact of the war in the Middle East.

Given today’s data does not capture the initial impact of the conflict in the Middle East, we can expect the labour market to soften even more from here on out. Businesses have had hiring plans largely on hold since before the budget, and many will have swiftly put the brakes on again at the outbreak of the war. When combined with other factors including ongoing wage pressures, national insurance increases and changes to business rates, it is difficult to see the labour market making a swift recovery any time soon.

The Bank of England’s monetary policy committee will reconvene next week to deliver its next interest rate decision, and today’s data, as well as what is expected to be an unpleasant inflation print tomorrow, will only further cement expectations for a hold. The conflict in the Middle East has seen energy prices soar, and the full effects will take some time to feed through, adding a fresh inflation risk and complicating the Bank’s decision-making process. It will soon have to make a call on how much it looks through any inflation spike and look instead to potential growth implications.”

Elsewhere, oil is down slightly this morning, with Brent crude – the international benchmark – down by just under 1% to $94.63 a barrel. It reflect some cautious optimism that Donald Trump will be able to secure a peace deal in Iran, despite comments from the US president on Monday night that it is “highly unlikely” he will extend the current ceasefire agreement, which expires on Wednesday.

The agenda

• 10am BST: ZEW’s Germany/eurozone economic confidence survey

• 10am BST: Social media and gaming firms give evidence on screen time

• 1.30pm BST: US retail sales for March

• 6pm BST: NatWest virtual shareholder event