Bank of England's Lombardelli warns youth unemployment could leave 'lasting scars'

Claire Lombardelli, the Bank of England's deputy governor for monetary policy, has told a City conference that the UK labour market is "stuck in low gear". She said it is cooling mainly through less hiring rather than more firing, which protects people already in work but makes it harder for those trying to get in or move on.

She said the costs of the hiring freeze are falling particularly heavily on young people. Official figures put youth unemployment among 16 to 24-year-olds at 16.4 per cent in the three months to July, an 11-year high. Lombardelli said young people account for around 40 per cent of all unemployment. She warned that joblessness early in working life "leaves lasting scars on employment and earnings", and that a cyclical shortage of entry-level jobs can become a structural loss of productive capacity.

She pointed to recent minimum wage increases as dampening demand, but said the greater barrier for young workers may be perceived risk rather than cost alone. Employers face uncertainty and investment when taking on young people, including training, supervision and pastoral support, she said.

The Office for National Statistics said vacancies fell in September to 691,000, the lowest since April 2021, while the unemployment rate fell to 4.7 per cent. At the Budget, Chancellor John Healey raised the minimum wage by 3.9 per cent for over-21s, to £13.20, and by the same percentage for younger workers, to £11.27. He told the BBC the Treasury would equalise the rates "one step at a time".

On interest rates, Lombardelli said there was "likely to be a case" for another rise in the near term. The Monetary Policy Committee voted unanimously earlier this month to raise rates to four per cent.