Youth unemployment has risen to its highest level in more than a decade, fueling fears of a “lost generation” and increasing expectations that the Bank of England will cut interest rates next month.
Figures from the Office for National Statistics show the unemployment rate for 16 to 24 year olds rose to 16.1 percent in the three months to December 2025. That equates to almost 740,000 unemployed young people, an increase of around 120,000 in less than a year.
In the first quarter of 2024, before the introduction of higher employer contributions to social security and an increase in the minimum wage, the youth unemployment rate was 14.2 percent or around 620,000 people.
The increase means young people account for almost half of the total increase in unemployment across the economy over the same period, despite making up just 13 percent of the working-age population.
Economists warn that while there was a rise in youth unemployment during the 2008 financial crisis and the Covid-19 pandemic, the current rise is unusual because it came without a comparable rise in unemployment among older age groups.
Peter Dixon, senior economist at the National Institute of Economic and Social Research, said younger workers were being “pushed out of the market”. Louise Murphy of the Resolution Foundation found that almost one in six young people who want to work cannot find a job.
Some analysts argue that recent fiscal policy changes have had a disproportionate impact on entry-level employment. Increasing employers’ social security contributions and reducing minimum wage differences between age groups have increased labor costs in sectors such as hospitality, retail and leisure, sectors that traditionally provide first jobs to 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 numbers, there is a positive element in the data: economic inactivity among young people has returned to near pre-pandemic levels, suggesting that more people are looking for work. However, many have difficulty securing a place.
The weakening labor market has increased expectations that policymakers will support growth. Financial markets are increasingly confident that the Bank of England will cut its key interest rate to 3.5 percent from 3.75 percent when its monetary policy committee meets on March 19.
Analysts at Bank of America said rising unemployment and slowing wage growth “leave us comfortable with our base case scenario of a cut in March,” while ING economist James Smith described the latest jobs report as keeping the central bank “firmly on track” for a cut.
In its latest forecasts, the Bank of England acknowledged that employment declines often hit younger cohorts first and warned that current trends could point to broader weakness in labor demand.
With inflation easing and growth muted, attention is now turning to whether interest rate cuts can help prevent the recent rise in youth unemployment from becoming entrenched.
