Youth unemployment has surged to its highest level in more than a decade, raising fears of a “lost generation” and intensifying expectations 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 among 16 to 24-year-olds climbed to 16.1 per cent. That equates to nearly 740,000 young people out of work, an increase of around 120,000 in under a year.
In the first quarter of 2024, before the implementation of higher employer national insurance contributions and minimum wage rises, the youth unemployment rate stood at 14.2 per cent, or roughly 620,000 people.
The rise means young people account for nearly half of the total increase in unemployment across the economy over the same period, despite representing just 13 per cent of the working-age population.
Economists warn that while spikes in youth joblessness were seen during the 2008 financial crisis and the Covid-19 pandemic, the current rise is unusual because it has occurred without a comparable surge in unemployment among older age groups.
Peter Dixon, senior economist at the National Institute of Economic and Social Research, said younger 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 fiscal policy changes have disproportionately affected entry-level employment. Increases in employer national insurance contributions and the compression of minimum wage differentials between age bands have raised labour costs for sectors such as hospitality, retail and leisure, industries that traditionally provide first jobs for school leavers and students.
Further pressure is expected in April when additional provisions of the government’s Employment Rights Act, including expanded sick pay entitlements, come into force.
Despite the deteriorating employment figures, there is a positive element within the data: economic inactivity among young people has returned close to pre-pandemic levels, suggesting more are seeking work. However, many are struggling to secure positions.
The softening labour market has reinforced expectations that policymakers will move to support growth. Financial markets are increasingly confident that the Bank of England will cut its base rate from 3.75 per cent to 3.5 per cent when its monetary policy committee meets on 19 March.
Analysts at Bank of America said the rise in unemployment and easing wage growth “keeps us comfortable with our base case of a March cut”, while ING economist James Smith described the latest jobs report as keeping the central bank “firmly on track” for a reduction.
In its most recent forecasts, the Bank of England acknowledged that downturns in employment often emerge first among younger cohorts, warning that current trends may signal broader weakness in labour demand.
With inflation easing and growth subdued, attention now turns to whether rate cuts can help prevent the recent spike in youth unemployment from becoming entrenched.
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Youth unemployment hits 11-year high as rate cut expectations build
