Young people in UK hit by ‘low-gear economy’, warns Bank of England deputy

Young people in UK hit by ‘low-gear economy’, warns Bank of England deputy Exclusive: Iran war has fuelled energy price rise and clouded outlook, driving up unemployment, says Clare Lombardelli

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.

Clare Lombardelli, the Bank’s deputy governor for monetary policy, said 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.

“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 said.

Against a highly volatile backdrop, she also warned Threadneedle Street was preparing for a “live” decision on interest rates next month after it increased the cost of borrowing last week for the first time in three years .

In an interview with the Guardian, Lombardelli said the UK’s employers were attempting to navigate the complex geopolitical backdrop by holding on to staff and 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.

“They [employers] are delaying hiring. They want to see if this uncertainty is going to resolve – like all of us. None of us thought we’d be nine months into this conflict.

“If firms are not hiring, obviously, by definition, that means people that are new to the labour market are hurt by that.”

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.

With employers facing rising costs triggered by the Iran war, higher taxes and weaker levels of demand from consumers squeezed by the cost of living crisis, unemployment in the UK has risen this year to 4.7% . Youth unemployment has risen at a sharper rate to the highest levels outside the Covid pandemic since 2015.