Why young people in the UK are taking the hit in a 'low-gear economy'

If you're young and job hunting in Britain right now, it probably feels tougher than it should. A senior Bank of England official says that's not your imagination.

Clare Lombardelli, the Bank's deputy governor for monetary policy, says young people are bearing the brunt of what she calls a "low-gear economy".

What happened?

Speaking in an interview ahead of a speech in London on Tuesday, Lombardelli said the war in the Middle East has pushed up energy prices and clouded the economic outlook. Employers are responding by holding back.

She describes a "low hire, low fire" labour market. Firms are keeping the staff they have and are not recruiting. "If firms are not hiring, obviously, by definition, that means people that are new to the labour market are hurt by that," she said.

The effect shows up in sectors that offer a first job, such as hospitality and retail. Employers surveyed by the Bank also told it that hiring a young person feels riskier than it used to.

Why is everyone talking about it?

The numbers back her up. UK unemployment has risen this year to 4.7%. Youth unemployment has climbed faster and is at its highest level since 2015, leaving aside the Covid pandemic.

The number of young people not in education, employment or training (known as Neets) is now close to a million. Employers are also dealing with higher costs, higher taxes and weaker consumer demand.

Lombardelli added a twist. Higher unemployment doesn't automatically bring inflation down, because firms are only hiring for roles they struggle to fill. "So that's obviously a problem," she said.

What's next?

Last week the Bank raised its base rate (the main interest rate that influences loans and mortgages) from 3.75% to 4%. It was the first increase in three years.

Lombardelli said another quarter-point rise could come as early as December. "Every meeting is live for us," she said, noting that markets see it as roughly 50/50. She said it depends on the conflict, energy prices and wider data.

Oil has fallen below $100 a barrel after the Democrats' wins in the US Congress. Donald Trump has said he is unlikely to order new attacks on Iran while talks progress.

The government is also waiting for a report on young people and work by former Labour cabinet minister Alan Milburn, expected next week.