Young people in Britain are bearing the brunt of a "low-gear economy" as employers halt hiring amid fallout from the Middle East conflict, according to Clare Lombardelli, the Bank of England's deputy governor for monetary policy. The Guardian reported that Lombardelli said the unfolding conflict, which has triggered a surge in energy prices and clouded economic outlook, is contributing to increased youth unemployment. "What you see is the cost falling on young people, so you can see this rapid rise in the number of young people who are struggling to find jobs," she said.
Lombardelli described the dynamics of the current jobs market as a "low-gear economy" where hiring has fallen sharply but redundancies remain limited. Employers are attempting to navigate geopolitical uncertainty by holding on to existing staff while freezing new recruitment. "If firms are not hiring, obviously, by definition, that means people that are new to the labour market are hurt by that," she explained. The Guardian reported that sectors offering young people their first jobs, particularly hospitality and retail, have seen particularly sharp falls in hiring.
The Bank of England raised its base rate from 3.75% to 4% last week, its first increase in three years. Lombardelli said a further quarter-point rise could be warranted from as early as December, with the monetary policy committee's next decision in that month being "live". She noted the market was pricing in roughly 50/50 odds of a December rise. "It depends what we see on the conflict and the energy prices and it depends what we see in the wider data," she said. Oil prices have fallen below $100 a barrel following developments that some investors interpret as potentially constraining further escalation of the Iran conflict.
Unemployment in the UK has risen this year to 4.7%, with youth unemployment rising at a sharper rate to its highest levels outside the Covid pandemic since 2015. The government is also grappling with nearly a million young people not in education, employment or training. Employers surveyed by the Bank suggested there is "a sense that hiring a young person is a higher risk than it used to be". However, Lombardelli warned that higher unemployment would not necessarily ease inflationary pressures, since employers are only hiring for positions they find harder to fill.
For UK savers, borrowers and businesses, the prospect of further interest rate rises in coming months alongside a weakening jobs market means borrowing costs may continue to climb while consumer spending faces additional pressure from employment uncertainty.