- Youth unemployment is forecast to reach 17.8 per cent in 2027.
- The BCC says AI adoption and higher employment costs are limiting entry-level opportunities.
- The UK risks creating a "lost generation" of workers, according to business leaders.
Artificial intelligence and rising employment costs could leave nearly one in five young people out of work by 2027, according to new forecasts that have intensified concerns about the future of Britain's younger workforce.
The British Chambers of Commerce (BCC) said youth unemployment in the UK could rise to 17.8 per cent next year, up from an expected 16.9 per cent this year, as businesses increasingly turn to AI tools and grapple with higher payroll costs. The warning adds to a growing debate over youth unemployment, AI jobs and the UK's economic outlook.
The business group suggested that entry-level workers may be bearing the brunt of changes in the labour market. As companies invest more heavily in automation and artificial intelligence, some of the tasks traditionally carried out by junior employees are increasingly being handled by technology.
A shrinking route into work
The BCC also pointed to recent increases in employers' National Insurance contributions and higher minimum wage costs, arguing that both have made businesses more cautious about recruitment.
David Bharier, deputy director of economics and insights at the BCC, reportedly said the UK economy remained stuck in a cycle of weak recoveries, with businesses repeatedly pulling back before growth could gather momentum.
He said youth unemployment approaching 18 per cent by 2027 could weaken the pipeline of skills needed for the future economy, as quoted in a news report.
The warning follows concerns raised by former Labour cabinet minister Alan Milburn, who suggested the UK could be heading towards a "lost generation" unless action is taken to improve opportunities for young people. Milburn reportedly argued that as many as 1.25 million young people could be outside employment, education or training by the early 2030s.
The BCC expects overall UK unemployment to rise to 5.5 per cent next year from around 5 per cent currently, while economic growth is forecast to remain subdued.
Gross domestic product is projected to expand by 0.9 per cent in 2026, followed by 1 per cent in 2027 and 1.3 per cent in 2028. The services sector, which accounts for around 80 per cent of the UK economy, is expected to remain the main driver of growth.
At the same time, businesses are facing fresh inflation concerns linked to rising global energy prices and instability in the Middle East. The BCC forecasts inflation could climb to 3.8 per cent by the end of the year, significantly higher than its previous estimate of 2.7 per cent.
Price growth is then expected to ease to 2.3 per cent by the end of next year before returning to the Bank of England's 2 per cent target in 2028.
Interest rates set to stay higher for longer
Despite inflation remaining above target, the BCC believes the Bank of England is likely to leave interest rates unchanged at 3.75 per cent for the rest of the year, partly to avoid placing additional pressure on the labour market.
The Bank's Monetary Policy Committee is due to meet on June 18. Financial markets currently expect policymakers to keep borrowing costs on hold as they weigh persistent inflation risks against signs of a slowing economy.
Taken together, the forecasts suggest that while the UK may avoid recession, younger workers could face a more difficult jobs market as businesses balance rising costs, economic uncertainty and the growing use of AI across the workplace.
