11 November 2026: Young people in the UK are being hit by a ‘low-gear economy’

Young people in the UK are increasingly bearing the brunt of what many economists call a “low-gear economy”, characterised by sluggish growth, weak productivity and limited opportunities. Despite relatively low unemployment, many younger workers find entry-level jobs scarce, wage growth modest and career progression slower than for previous generations. High housing costs, elevated rents and student debt further squeeze disposable incomes and make it harder to build financial security.

The problem is particularly acute for those without university degrees, as businesses remain cautious about investment and hiring. At the same time, technological change and automation are reshaping the labour market, creating uncertainty about future employment prospects. While inflation has eased from its recent peaks, living costs remain high relative to earnings.

Unless economic growth accelerates and investment strengthens, younger Britons risk a prolonged period of lower living standards and fewer opportunities than their parents' generation, with potentially significant social and economic consequences.

Two members of the Bank of England’s Monetary Policy Committee spoke yesterday about the key influences on the economy. Sarah Breeden believes the recent sell-off in AI-related stocks is a healthy, welcome market correction rather than a cause for alarm. After a prolonged period of rapid gains fuelled by enthusiasm for artificial intelligence, valuations in parts of the sector had become stretched, raising concerns about excessive speculation.

Breeden suggested that periodic corrections help restore more sustainable pricing and encourage investors to better distinguish between firms with genuine long-term potential and those benefiting primarily from market hype. While AI is still expected to deliver significant economic and productivity gains, the adjustment highlights the importance of keeping expectations realistic and avoiding asset-price bubbles that could threaten broader financial stability.

Meanwhile, her colleague Claire Lombardelli said conditions that could entrench inflation in Britain are taking shape, and she signalled she may back another rate increase after last week's move, declining to rule out December or February.

The remarks, delivered at a Central Banking conference hosted by King's Business School and the Money, Macro & Finance Society in London, reinforce the case for further tightening even as the labour market cools. Lombardelli said "the conditions for persistent inflationary dynamics over the medium term are crystallising," adding that this "warranted an increase in Base Rate last week."

"In the absence of evidence of weaker inflation pressures, I continue to think there is likely to be a case for a further increase in rates in the near term," she said, repeating language from the minutes of last week's decision.

Asked about her voting intentions for upcoming meetings, the Deputy Governor said she would not rule out action at either the December or February gathering, describing each meeting as "live". She said her vote would be shaped by developments in the Middle East conflict as well as by price and labour market data.

On longer-term inflation expectations, Lombardelli said the Bank does not see public expectations de-anchoring.

The pair’s boss, Andrew Bailey, also spoke yesterday on what is becoming his favourite topic: the effect of AI on the nation’s economy.

Speaking at Zurich University as part of the SIAF Lecture Series, Bailey outlined his latest thoughts on the opportunities and challenges facing the UK.

He said we are seeing growing signs of the "beginnings of a positive supply shock" from AI and the investment required.

"In the UK, economic activity is proving more resilient than we had expected, and some of that is due to AI investment, particularly in the business services sector," Bailey explained.

He added that AI also carries risks and potential downsides.

"I am an optimist on AI, digital technology and, most probably, robotics too," he told the audience. "They have the potential to lift the sustainable growth rates of many economies by raising productivity growth. That is a good thing.

But with that come risks, including how to come to terms with AI. In our world, Frontier AI has increased the risk of cyberattacks, which was already prominent.

More broadly, it has led to concerns that may call into question public trust in AI. This is critical."

Bailey added that central banks must act promptly to identify ways to give the public the level of trust "they want and deserve".

Sterling came under heavy pressure in global FX markets yesterday, falling sharply against both the US dollar and the euro. The pound was undermined by renewed demand for the dollar as investors responded to stronger US economic data and expectations that US interest rates may remain higher for longer.

Against the euro, sterling surrendered recent gains as traders took profits after the Bank of England's rate increase and reassessed the UK's growth outlook.

The broad-based decline left the pound among the weaker major currencies on the day, highlighting UK assets' sensitivity to shifting global interest-rate expectations and a stronger international appetite for the dollar and euro.

Federal Reserve Governor Christopher Waller has reinforced the case for tighter monetary policy, arguing that further action may be needed to ensure inflation returns sustainably to the Fed’s target. His comments reflect growing concern among policymakers that underlying price pressures remain too strong, despite significant progress from the inflation peaks seen in recent years. Recent economic data, including firm consumer spending and a resilient labour market, suggest demand in the US economy remains robust, potentially slowing disinflation.

Waller’s stance signals a willingness to keep interest rates elevated for longer and to raise them further if inflation fails to moderate as expected. Such remarks have strengthened expectations that the Fed will prioritise price stability over near-term concerns about slower economic growth. Financial markets responded by lifting US Treasury yields and supporting the dollar, as investors reassessed the likelihood of an extended period of restrictive monetary policy.

For the broader economy, tighter policy is intended to cool demand, ease wage and price pressures, and prevent inflation expectations from becoming entrenched. On the downside, higher borrowing costs may weigh on business investment and household spending. Fed officials continue to argue that restoring price stability is essential for achieving sustainable long-term economic growth.

Meanwhile, his colleague on the FOMC, Lori Logan, the President of the Dallas Fed, showed a significantly more hawkish side, suggesting that the Federal Reserve needs to deliver at least two more quarter-percentage-point interest rate increases to bring down inflation, and may need to do so promptly to prevent broadening price pressures from becoming baked into the economy. “It remains clear to me, given the current outlook, that the FOMC needs to implement at least two more 25-basis-point rate increases,” Logan said in remarks prepared for delivery to an energy conference sponsored by the Dallas and Kansas City Fed banks. “Excess inflation is unacceptable.”

The Fed has a 2% inflation target, as measured by the Personal Consumption Expenditures Price Index.

The Fed raised rates by a quarter of a percentage point in September but skipped a hike last month, a move Logan, who loses her vote on the FOMC next year, supported because she felt households, businesses, and markets should adapt more easily to gradual rate hikes, which also reduce the risk of slowing economic activity more than necessary.

“The exact pace of increases could depend on the near-term economic and financial environment; it may be possible to move more rapidly this winter than the FOMC has moved so far.”

Inflation is rising not just because of wartime energy disruptions or tariffs, but also because of broader trends that could persist even after recent shocks dissipate, she said.

“Tighter policy will be necessary to balance the outlook and risks for inflation and employment appropriately,” she said. “And it is important to achieve that balance promptly. The longer above-target inflation persists, the greater the risk that it becomes baked into behaviour.”

The Fed’s next policy meeting is on December 8-9.

Although CPI inflation has taken a back seat to the Fed’s preferred measure, Personal Consumption Expenditures, the data still affect markets by giving investors the most recent information on price changes.

CPI rose by 0.4% MoM in October, exceeding expectations and reinforcing concerns that the battle against inflation is not yet won. The stronger-than-anticipated reading suggested that underlying price pressures remain persistent, despite the Federal Reserve's prolonged period of restrictive monetary policy. The data added to evidence that the U.S. economy continues to display considerable resilience, supported by steady consumer spending and a robust labour market.

Markets reacted by raising expectations that interest rates could stay higher for longer, while some investors reassessed the possibility of further policy tightening. Treasury yields moved higher, and the dollar strengthened as traders responded to the inflation surprise. Higher inflation readings complicate the Fed's task, as officials seek to balance the need to restore price stability with the risk that restrictive policy could eventually weigh more heavily on economic growth and employment.

The dollar gained ground against most of its major counterparts yesterday, with Sterling under the most pressure and the euro also losing ground as investors shifted towards the higher-yielding U.S. currency. Market participants interpreted the latest inflation figures as evidence that price pressures remain persistent. At the same time, comments from Waller and Logan reduced the likelihood of near-term monetary easing by the Federal Reserve.

Overall, the dollar index recorded a strong session, driven by resilient U.S. economic data, rising rate expectations and renewed confidence in the relative strength of the U.S. economy. These factors made the greenback one of the best-performing major currencies on the day.

As the contest to lead the European Central Bank nears its conclusion, attention should shift from political manoeuvring to the eurozone's economic challenges. While the choice of the next ECB President matters, the institution's credibility ultimately depends on its ability to deliver price stability and support sustainable economic growth, not on the nationality or political affiliations of its leadership.

The Eurozone faces a complex backdrop. Inflation remains a concern in several member states, while growth prospects are uneven and investment remains subdued. At the same time, policymakers must contend with the lingering effects of elevated borrowing costs, geopolitical uncertainty and structural challenges, including energy security and demographic pressures. Against this backdrop, financial markets care far more about the future path of interest rates than about political negotiations over senior appointments.

The ECB's next decisions will carry significant implications for households, businesses and governments across the currency bloc. If inflation pressures persist, policymakers may need to maintain a restrictive stance for longer than investors currently expect. Conversely, signs of a sharper economic slowdown could strengthen the case for a more accommodative approach.

Ultimately, the debate should focus on economic realities rather than personalities. The ECB's primary task remains ensuring that monetary policy is appropriately calibrated to support both price stability and long-term prosperity across the region.

While price stability remains the ECB’s number one priority, the race for the Presidency of the Bank still has a few twists and turns to navigate. Reports that France may support Pablo Hernández de Cos rather than Klaas Knot in the race to become the next ECB President could prove significant given Paris's influence within Eurozone policymaking. Such a move would strengthen the Spanish candidate's chances at a time when European leaders are seeking to build consensus ahead of a decision expected later this year.

Investor sentiment in the Eurozone has weakened slightly in November, reinforcing expectations that the region's economy will remain stagnant, according to a Sentix survey.

The institute's economic index for the single-currency area fell 0.3 points to 2.4 points. Its assessment of current economic conditions was unchanged at -3.3 points, while the gauge of future expectations declined to 8.3 points from 8.8 points in October, marking its lowest reading since June.

The latest figures further undermine hopes for a lasting economic recovery. Although the overall index remains marginally positive, the continued negative assessment of current conditions indicates that the Eurozone has yet to overcome its period of economic weakness, Sentix said.

The economic policymaking environment is contributing to the downturn, while higher interest rates, elevated crude oil prices, and political uncertainty are also pressuring the economy. The unstable situation in France, where intense protests are taking place, along with demonstrations in several other countries, is adding to uncertainty among companies and investors.

ECB Chief Economist Philip Lane has said that a further interest rate increase in December would be prudent if incoming data continue to show persistent inflationary pressures. His comments underscore the ECB's determination to ensure that inflation returns sustainably to its target, even as economic growth across the eurozone remains uneven.

A December rate hike would reinforce the message that policymakers are not yet convinced that price pressures have been fully contained. While headline inflation has moderated from previous highs, underlying measures remain elevated, raising concerns that inflation could prove more persistent than anticipated.

Financial markets have interpreted Lane's remarks as strengthening the case for further policy tightening. Higher rates would increase borrowing costs for households and businesses but could help dampen demand and prevent inflation expectations from becoming entrenched.

The comments also highlight the ECB's willingness to prioritise price stability despite signs of slower economic momentum. For investors, the focus will now be on upcoming inflation, wage and activity data, which are likely to determine whether policymakers ultimately proceed with another rate increase at their December meeting.

The euro endured a difficult session in global FX markets yesterday, coming under pressure as stronger-than-expected U.S. inflation data and hawkish comments from Christopher Waller boosted expectations that Federal Reserve interest rates could remain higher for longer. The resulting rise in U.S. Treasury yields supported the dollar and weighed on the single currency.

EUR/USD weakened as investors favoured the greenback's yield advantage, while the euro also struggled to gain traction despite ongoing debate over the outlook for ECB policy. Market participants increasingly focused on the resilience of the U.S. economy and the prospect of further policy tightening from the Federal Reserve, factors that overshadowed support from expectations of additional ECB rate increases.

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