Youth unemployment hits 11-year high as expectations of rate cut grow
Youth unemployment has risen to its highest level in more than a decade, raising fears of a “lost generation” and bolstering hopes that the Bank of England will cut interest rates next month.
Figures from the Office for National Statistics show that in the three months to December 2025, the unemployment rate for 16 to 24-year-olds rose to 16.1 per cent. That equates to nearly 740,000 unemployed youth, an increase of about 120,000 in less than a year.
In the first quarter of 2024, before the introduction of higher employers’ national insurance contributions and minimum wage increases, the youth unemployment rate stands at 14.2 percent, or about 620,000 people.
The increase means that young people account for almost half of the increase in unemployment across the economy over the same period, even though they represent only 13 percent of the working population.
Economists warn that while the increase in youth unemployment was seen during the 2008 financial crisis and the Covid-19 pandemic, the current increase is unusual because it has occurred without an increase in unemployment among older groups.
Peter Dixon, senior economist at the National Institute of Economic and Social Research, said young workers were being “priced out of the market”. Louise Murphy of the Resolution Foundation noted that almost one in six young people who want to work cannot find a job.
Some analysts argue that recent changes in monetary policy have had a significant impact on entry-level hiring. The increase in employer national insurance contributions and the narrowing of the minimum wage gap between age groups have increased labor costs in sectors such as hospitality, retail and leisure, industries that often provide the first jobs for school leavers and students.
More pressure is expected in April when additional provisions of the government’s Employment Rights Act, including expanded sick pay rights, come into force.
Despite the declining employment figures, there is something positive within the data: unemployment among young people has returned to pre-pandemic levels, suggesting that there are more job seekers. However, many are struggling to find positions.
A softening labor market has bolstered expectations that policymakers will move to support growth. Financial markets are increasingly confident that the Bank of England will cut its key rate from 3.75 percent to 3.5 percent when the monetary policy committee meets on March 19.
Analysts at Bank of America said rising unemployment and slowing wage growth “make us comfortable with our case for March cuts”, while ING economist James Smith described the latest jobs report as keeping the central bank “firmly on track” to cut.
In its latest forecasts, the Bank of England acknowledged that job losses tend to occur first among the youngest group, warning that current trends may reflect more weakness in labor demand.
With inflation and growth slowing, attention is now turning to whether deflation can help prevent the recent surge in youth unemployment from taking hold.
