Around one in five Britons could be out of a job in less than a year, as higher payroll taxes, a skyrocketing minimum wage and the relentless march of artificial intelligence combine to close school and university leavers in the job market.
In a grim update to its quarterly economic outlook, the British Chambers of Commerce (BCC), one of the country’s leading business groups, predicts that the unemployment rate among 16- to 24-year-olds will rise to 17.8 percent by 2027, up from an already uncomfortable 16.9 percent this year. The slump will push youth unemployment to its highest level in a decade and give new impetus to warnings of a “lost generation” of workers.
The BCC singled out the rapid adoption of AI tools by employers, typically to handle the type of process, entry-level jobs that used to give young people a foot on the ladder, as a leading case. A separate Business Matters investigation showed how the big four accounting firms are already cutting back on graduate recruitment as AI replaces entry-level jobs, a pattern that is now rapidly spreading across finance, legal, sales and back office jobs.
Government policy does little to alleviate this scourge. The BCC believes that ministers’ decisions to increase employers’ national insurance contributions and move to one of the lowest minimum wages in history have made young, inexperienced workers equally expensive to hire, a point that business owners and payroll experts have repeatedly made since the Department of Finance highlighted the rising costs facing employers.
The findings reinforce a warning issued last week by Alan Milburn, a former Labor Cabinet minister, who told ministers that without urgent intervention 1.25 million young people could be considered not in employment, education or training (NEET) by the early 2030s. Business Matters has previously reported that the NEET cohort has already topped one million, while figures from the Office for National Statistics show the proportion of young people unemployed is at its highest since records began in 1992.
David Bharier, deputy director of economics and information at the BCC, said the picture points to a structural problem, not just cycles. “The UK is not in recession, but the economy is still locked in a cycle where each recovery is interrupted before gaining strength, and firms fall back on the defensive,” he said. “With youth unemployment approaching 18 per cent by mid-2027, the UK risks weakening the skills pipeline it needs for the next economy.”
Overall unemployment is expected to reach 5.5 percent next year, up from the current 5 percent. Gross domestic product, the BCC said, will grow by 0.9 percent this year, 1 percent in 2027 and 1.3 percent in 2028, with the services sector, which now accounts for nearly 80 percent of the national product, doing most of the lifting.
Inflation, on the other hand, is being uncomfortably boosted by rising global energy prices related to the war in the Middle East. The BCC now sees the consumer price index peaking at 3.8 percent by the end of 2026, above its previous forecast of 2.7 percent, before easing back to 2.3 percent next year and returning to the Bank of England’s 2 percent target for 2028. The latest ONS data put inflation at 3.8 percent on April 3. March.
Faced with that mix of weak growth, rising unemployment and pressure on prices, the BCC expects the Bank’s Monetary Policy Committee to hold the key rate at 3.75 percent for the remainder of the year, with its next decision due on June 18. At its April meeting, the Bank said it “stands ready to act” if inflation appears strong, but officials are keenly aware of the damage that can be done to a fragile labor market.
“A lot depends on the flow of conflicts in the Middle East,” said Bharier. “Inflation is likely to exceed 4 per cent this year, but the Bank of England faces a different scenario than the 2022 crisis. Weak growth, rising unemployment and an already restrictive monetary policy mean the Bank may want to manage this without raising interest rates and risk further damage.”
For SMEs, the long-term proving ground for initial jobs, apprenticeships and on-the-job training, the combination of high employment costs, geopolitical uncertainty and falling investment is hard to swallow. The BCC expects business investment to fall by 2.2 percent this year and 0.1 percent in 2027 before recovering to 2.3 percent in 2028. Without meaningful policy change, the danger is that today’s employment becomes tomorrow’s lost decade for Britain’s young workforce.
