Nearly one in five young Britons could be out of work within little more than a year, as higher payroll taxes, a sharply rising minimum wage and the relentless march of artificial intelligence combine to shut school and university leavers out of the jobs market.

In a sobering update to its quarterly economic outlook, the British Chambers of Commerce (BCC), one of the country’s most influential business lobby groups, forecasts that the unemployment rate among 16 to 24-year-olds will climb to 17.8 per cent in 2027, up from an already uncomfortable 16.9 per cent this year. The deterioration would push youth joblessness to its highest level in well over a decade and lend fresh weight to warnings of a “lost generation” of workers.

The BCC singled out the rapid take-up of AI tools by employers, typically to handle the kind of routine, entry-level tasks that have traditionally given young people a foot on the ladder, as a leading culprit. A separate Business Matters investigation has shown how the big four accountancy firms are already slashing graduate hiring as AI replaces entry-level roles, a pattern now spreading rapidly across financial services, legal, marketing and back-office functions.

Government policy is doing little to soften the blow. The BCC believes ministers’ decisions to lift employer national insurance contributions and push through one of the largest minimum wage increases on record have made younger, less experienced staff disproportionately expensive to hire, a point business owners and payroll specialists have made repeatedly since the Treasury signalled the increased cost burden facing employers.

The findings reinforce a warning issued last week by Alan Milburn, the former Labour cabinet minister, who told ministers that without urgent intervention as many as 1.25 million young people could be classed as not in employment, education or training (NEET) by the early 2030s. Business Matters has previously reported that the NEET cohort is already nudging one million, with Office for National Statistics figures showing the share of economically inactive young people at its highest level since records began in 1992.

David Bharier, deputy director of economics and insights at the BCC, said the picture pointed to a structural, not merely cyclical, problem. “The UK is not in recession, but the economy remains trapped in a cycle where each recovery is interrupted before gaining traction, and firms go 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 joblessness is forecast to reach 5.5 per cent next year, up from the current 5 per cent. Gross domestic product, the BCC said, will grow by just 0.9 per cent this year, 1 per cent in 2027 and 1.3 per cent in 2028, with the services sector, which now accounts for around 80 per cent of national output, doing most of the heavy lifting.

Inflation, meanwhile, is being given an unwelcome boost by surging global energy prices linked to the war in the Middle East. The BCC now sees the consumer prices index peaking at 3.8 per cent by the end of 2026, well above its previous forecast of 2.7 per cent, before easing back to 2.3 per cent next year and returning to the Bank of England’s 2 per cent target in 2028. The latest ONS data put inflation at 2.8 per cent in April, down from 3.3 per cent in March.

Faced with that mix of weak growth, rising joblessness and stubborn price pressures, the BCC expects the Bank’s Monetary Policy Committee to hold the base rate at 3.75 per cent for the remainder of the year, with its next decision due on 18 June. At its April meeting the Bank said it “stands ready to act” if inflation proves sticky, but officials are clearly mindful of the damage a further squeeze would do to a fragile labour market.

“Much hinges on the course of the Middle East conflict,” Bharier said. “Inflation is likely to edge towards 4 per cent this year, but the Bank of England faces a different scenario compared with the 2022 crisis. Weaker growth, rising unemployment and already restrictive monetary policy mean the Bank could seek to manage this without raising the interest rate and risking further damage.”

For SMEs, long the proving ground for first jobs, apprenticeships and on-the-job training, the cocktail of higher employment costs, geopolitical uncertainty and falling investment is becoming hard to swallow. The BCC expects business investment to fall by 2.2 per cent this year and a further 0.1 per cent in 2027 before recovering by 2.3 per cent in 2028. Without a meaningful shift in policy, the danger is that today’s hiring freeze becomes tomorrow’s lost decade for Britain’s young workers.

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BCC warns nearly one in five young Britons could be out of work by 2027 as AI and tax rises bite