Young people in Britain are bearing the brunt of a “low-gear economy” as employers hold back from hiring, a deputy governor of the Bank of England has warned, with youth unemployment rising at a sharper rate than unemployment overall.

Clare Lombardelli, the Bank’s deputy governor for monetary policy, said the fallout from the war in the Middle East, which has pushed up energy prices and clouded the economic outlook, was contributing to the rise in 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 told the Guardian.

A low-hire, low-fire labour market

Ms Lombardelli described a labour market in which employers are keeping the staff they already have but freezing new recruitment. “It’s what I call a low-gear economy. So a labour market where you’re seeing a real fall-off in hiring. But actually, we’re not seeing much in the way of redundancies. What’s going on is this kind of low-hire, low-fire dynamic,” she said.

That pattern falls most heavily on people entering the workforce, because fewer vacancies mean fewer routes into a first job. Hospitality and retail, the sectors that traditionally provide a first step into work for many young people, have been hit hardest, and employers surveyed by the Bank increasingly view hiring a young person as a greater risk than in the past.

Unemployment at 4.7 per cent

Unemployment in the UK has risen this year to 4.7 per cent, while youth unemployment has climbed more sharply to its highest level outside the Covid pandemic since 2015. Parliament heard last week that youth unemployment reached 15.6 per cent in the first quarter of this year, and that almost one million young people are not in education, employment or training.

The warning comes as hiring continues to cool. The latest KPMG and Recruitment and Employment Confederation Report on Jobs, published on 9 November, found permanent placements fell in October for the first time in four months. The government is awaiting a report on young people and work by former cabinet minister Alan Milburn, expected next week.

Ms Lombardelli, who voted with the 8-1 majority last week to raise Bank Rate to 4 per cent from 3.75 per cent, is due to set out her concerns about the slowdown in labour market dynamism in a speech at the Bank Watchers Conference in London on Tuesday. Young jobseekers can search live vacancies and get careers support through GOV.UK Find a Job, and the Bank’s speech is published on the Bank of England website.