Bank of England's Lombardelli says UK 'low-gear economy' is crushing young workers

Clare Lombardelli, the Bank of England's deputy governor for monetary policy, told the Guardian that the fallout from the war in the Middle East is landing hardest on people trying to enter the workforce — and that employers are the ones hitting the brakes. She calls it a "low-gear economy": hiring has fallen off sharply while redundancies stay flat, a "low hire, low fire dynamic" where firms hold onto existing staff but stall on new recruits. Employers are "delaying hiring" while they wait to see how the uncertainty resolves, she said, adding that nobody expected to be nine months into this conflict.

The damage shows up in the numbers. UK unemployment has climbed to 4.7% this year, while youth unemployment has risen faster, hitting its highest level outside the Covid pandemic since 2015. The count of young people not in education, employment or training has swelled to almost a million. Lombardelli pinpoints hospitality and retail — the sectors that hand young people their first job — as the places where vacancies have "really fallen off," and says Bank surveys show employers now treat hiring a young person as "a higher risk than it used to be."

On rates, Lombardelli voted with the majority to raise the base rate by a quarter point, to 4%, the first increase in three years. Another move could come as soon as December. "Every meeting is live for us. December is, you know, it's certainly plausible," she said, noting markets currently price it at roughly 50/50. She said she wouldn't rule a rise out, but doesn't have enough information yet — the conflict and energy prices will shape the call.

Oil has slid below $100 a barrel after the Democrats' victories in the US Congress, which some investors read as a constraint on Donald Trump's ability to prolong the fighting in Iran. Trump said at the weekend that he was highly unlikely to order fresh strikes as long as talks to end the conflict keep moving.

There's a political clock running too. Andy Burnham's government is waiting on a report into young people and work from former Labour cabinet minister Alan Milburn, expected to land next week. Lombardelli will air her concerns about a slowdown in labour market dynamism at a speech in London on Tuesday.

The Bank is watching the jobs market closely, worried that stubborn inflation could become embedded if workers have the leverage to demand bigger wage deals and companies pass those costs on. But Lombardelli cautioned that rising unemployment won't necessarily take pressure off prices, because employers hanging onto their staff are only filling roles they find hard to fill. "You can have higher unemployment without it exerting a downward pressure on inflation," she said. "So that's obviously a problem."