Bank of England’s Lombardelli warns youth unemployment crisis could leave ‘lasting scars’

Bank of England rate-setter Claire Lombardelli has cautioned that youth unemployment in the UK could lead to "lasting scars" for young people as employers reduce hiring. Speaking at a City conference, Lombardelli stated that the labour market is "stuck in low gear" due to a lack of job creation rather than increased layoffs. While the overall economy has been "unexpectedly robust", the labour market's reduced hiring capacity is creating challenges for those seeking employment.

The Office for National Statistics reported a decrease in vacancies to their lowest level since April 2021 in September, despite the unemployment rate dropping to 4.7 per cent, its lowest since July. Lombardelli warned that young people, aged 16 to 24, now make up around 40 per cent of all unemployed workers, with the youth unemployment rate rising to an 11-year-high of 16.4 per cent.

She emphasized that early joblessness can "delay the accumulation of skills and experience" and result in a "structural loss of productive capacity." The Bank of England deputy governor attributed the hiring freeze to the increased minimum wage, which she believes is dampening demand for entry-level jobs. Chancellor John Healey announced a 3.9 per cent increase in the minimum wage for over-21s and an equal hike for younger workers, but Lombardelli noted that the policy may need to be reconsidered.

She argued that the main barrier for young workers is not just cost but the perceived risk associated with being hired, as employers face uncertainty and the need for training and support. Lombardelli hinted at the possibility of another interest rate hike in the near future, following the Bank's recent increase to four per cent.