Nearly one in five young people in the UK could be out of work within little more than a year, as businesses scale back entry-level hiring under pressure from rising employment costs and rapid advances in artificial intelligence, according to a major new economic forecast.
The British Chambers of Commerce (BCC) has warned in its latest quarterly outlook that unemployment among 16 to 24-year-olds is projected to rise to 17.8% in 2027, up from 16.9% this year. That would mark the highest level of youth joblessness in more than a decade and intensify concerns over a growing “lost generation” of workers.
The organisation points to a combination of factors driving the deterioration, including higher employer national insurance contributions, a significant increase in the minimum wage, and widespread adoption of AI tools across workplaces. These technologies are increasingly being used to perform routine tasks that were previously assigned to graduates and school leavers.
Industries such as accounting, finance, legal services and marketing are already reducing graduate recruitment, with similar trends emerging across administrative and support roles. Business groups say this is narrowing the traditional pathway into work for young people.
Government policy has also come under scrutiny. The BCC argues that recent cost increases for employers are making inexperienced staff more expensive to hire at a time when firms are already cautious about investment and expansion.
The outlook follows warnings from former Labour minister Alan Milburn, who has suggested that the number of young people not in education, employment or training could reach 1.25 million by the early 2030s. Official data already shows youth economic inactivity at record levels.
BCC deputy director of economics David Bharier said the issue is structural rather than temporary. He described an economy where growth cycles are repeatedly interrupted, leaving firms reluctant to expand their workforce. He warned that rising youth unemployment risks weakening the long-term skills pipeline needed for future industries.
Overall unemployment is forecast to rise to 5.5% next year, while GDP growth is expected to remain subdued at between 0.9% and 1.3% over the coming years. Inflation is also projected to stay above target in the near term, driven in part by higher global energy prices linked to geopolitical tensions.
The Bank of England is expected to hold interest rates steady at 3.75%, balancing inflation risks against a weakening labour market and sluggish growth.
For small and medium-sized businesses, traditionally the main source of early career jobs, the combination of rising costs, technological disruption and cautious investment is proving increasingly difficult. The BCC expects business investment to decline before recovering later in the decade, raising concerns that current hiring constraints could have long-term consequences for young workers entering the labour market.
