Young people in Britain are bearing the brunt of a 'low-gear economy' as employers freeze hiring amid the fallout from the war in the Middle East, the Bank of England's deputy governor for monetary policy, Clare Lombardelli, has warned. She said the conflict, which has pushed up energy prices and clouded the economic outlook, was contributing to an increase in youth unemployment.
Lombardelli said employers were trying to navigate the geopolitical uncertainty by holding on to existing staff and not recruiting new ones, a dynamic she described as 'low hire, low fire.' This is hitting young people hardest, she explained, because they are often the ones seeking first jobs in sectors such as hospitality and retail, where hiring has 'really fallen off'.
'If firms are not hiring, obviously, by definition, that means people that are new to the labour market are hurt by that,' she told the Guardian.
Her comments come as Andy Burnham's government awaits a report on young people and work by former Labour cabinet minister Alan Milburn, expected next week. Unemployment in the UK has risen to 4.7% this year, with youth unemployment increasing at a sharper rate to its highest level outside the Covid pandemic since 2015. The number of young people not in education, employment or training (Neet) has risen to almost a million.
Lombardelli, a former Treasury and OECD economist, is expected to outline her concerns in a speech in London on Tuesday. She voted with the Bank's monetary policy committee (MPC) majority to raise the base rate from 3.75% to 4% last week, the first increase in three years. She said a further quarter-point rise could be warranted as early as December, describing the next meeting as 'live.'
'What's the market pricing at the moment? It's about 50/50 for December,' she said. 'I think it depends what we see on the conflict and the energy prices and it depends what we see in the wider data.
Oil prices have fallen sharply, to below $100 a barrel, after the Democrats' victories in the US Congress, which some investors see as potentially constraining Donald Trump's capacity to prolong the conflict in Iran. Trump said at the weekend he was highly unlikely to order fresh attacks on Iran as long as talks to end the conflict progressed.
Lombardelli said employers surveyed by the Bank suggested there was 'a sense that hiring a young person is a higher risk than it used to be.' She cautioned that higher unemployment would not necessarily bear down on inflationary pressures, because employers holding on to staff were only hiring for positions they found harder to fill.
'You can have higher unemployment without it exerting a downward pressure on inflation,' she said.
Analysis
Why This Matters
- Young people entering the job market face a 'low-gear economy' with sharply reduced hiring, worsening the UK's youth unemployment and Neet crisis.
- The Bank of England's next interest rate decision in December is 'live,' with the path of the Iran conflict and energy prices key factors, affecting mortgage costs and broader economic activity.
- The government's forthcoming Milburn report on young people and work will likely need to address structural barriers to youth employment amid geopolitical uncertainty.
Background
The UK is grappling with a cost of living crisis and rising unemployment, now at 4.7%. The Bank of England raised its base rate to 4% last week, the first increase in three years, as it tries to contain inflation. The Iran war has pushed up energy prices, adding to business costs and weakening consumer demand. The number of young people not in education, employment or training has risen to almost one million, the highest outside the pandemic since 2015.
Key Perspectives
Clare Lombardelli (Bank of England deputy governor for monetary policy): Warns of a 'low-gear economy' where employers are not hiring, disproportionately hurting young people seeking their first jobs in sectors like hospitality and retail. She says hiring a young person is seen as 'a higher risk than it used to be' and that higher unemployment may not reduce inflation if employers only hire for hard-to-fill roles.
Donald Trump (US President): Said at the weekend he is highly unlikely to order fresh attacks on Iran as long as talks to end the conflict progress, a factor that could ease energy price pressures and influence the Bank of England's next rate decision.
What to Watch
- The Bank of England's December interest rate decision, now described as 'live,' with market pricing at 50/50 for a further quarter-point rise.
- The publication of Alan Milburn's report on young people and work, expected next week, and the government's response.
- Developments in the Iran conflict and the trajectory of oil prices, which will shape the economic outlook and hiring decisions.
Checked
12 claims in this story checked against 1 source: 11 supported.
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- SupportedThe Bank of England deputy governor warned that young people in Britain are bearing the brunt of a “low-gear economy”.World news | The Guardian: “Young people in Britain are bearing the brunt of a “low-gear economy” as employers hold back from hiring amid the fallout from the war in the Middle East, a deputy governor of the Bank of England has warned.”
- SupportedLombardelli said employers were operating a “low hire, low fire” dynamic.World news | The Guardian: ““What’s going on is this kind of low hire, low fire dynamic,” she said.”
- Partly supportedLombardelli said hiring had “really fallen off” in hospitality and retail.World news | The Guardian: ““So that might be hospitality, it might be retail, in particular,” she said. “If you look at the distribution of where variances are, they’ve really fallen off in those sectors where young people can get their first start in the labour market.””
- SupportedLombardelli told the Guardian, “If firms are not hiring, obviously, by definition, that means people that are new to the labour market are hurt by that.”World news | The Guardian: ““If firms are not hiring, obviously, by definition, that means people that are new to the labour market are hurt by that.””
- SupportedLombardelli said the Middle East conflict was contributing to rising youth unemployment and had pushed up energy prices.World news | The Guardian: “the unfolding conflict, which has triggered a surge in energy prices and clouded the outlook for the economy, was contributing to an increase in youth unemployment.”
- SupportedAndy Burnham’s government was awaiting a report on young people and work by former Labour cabinet minister Alan Milburn, expected next week.World news | The Guardian: “Her comments come as Andy Burnham’s government awaits the findings of a report into young people and work by the former Labour cabinet minister, Alan Milburn, which is expected to be published next week.”
- SupportedUK unemployment rose to 4.7% this year.World news | The Guardian: “unemployment in the UK has risen this year to 4.7%.”
- SupportedYouth unemployment rose faster, reaching its highest level outside the Covid pandemic since 2015.World news | The Guardian: “Youth unemployment has risen at a sharper rate to the highest levels outside the Covid pandemic since 2015.”
- SupportedThe number of young people not in education, employment or training rose to almost a million.World news | The Guardian: “an increase in the number of young people who are not in education, employment or training (Neet) to almost a million.”
- SupportedLombardelli voted with the MPC majority to raise the base rate from 3.75% to 4% last week, the first increase in three years.World news | The Guardian: “Lombardelli joined the majority of the Bank’s monetary policy committee (MPC) in voting to lift the base rate from 3.75% to 4%.”
- SupportedLombardelli said a quarter-point rise could be warranted as early as December and described December as a “live” decision, with markets pricing it at about 50/50.World news | The Guardian: “She said a further quarter-point rise could be warranted from as early as its next policy meeting in December. “Every meeting is live for us. December is, you know, it’s certainly plausible. What’s the market pricing at the moment? It’s about 50/50 for December,” she said.”
- SupportedOil prices fell below $100 a barrel after Democratic victories in the US Congress, which some investors saw as potentially constraining Trump’s ability to prolong the Iran conflict.World news | The Guardian: “Oil prices have fallen sharply, to below $100 a barrel, after the Democrats’ victories in the US Congress, which some investors have interpreted as potentially constraining Donald Trump’s capacity to prolong the conflict in Iran.”