Wobbles in the private credit market in the fourth quarter of 2025 spooked those retail investors with investments in private credit funds – a significant segment of the growing shadow banking sector. These funds use investors’ money to finance lending to businesses and individuals who struggle to, or do not want to, access credit from banks and the public market. Therefore, the risks are higher.
The failures of two auto parts suppliers in the USA last year have highlighted the risks involved. Retail investors are exiting such funds in significant numbers. Bcred, Blackstone’s $82 billion private credit fund, saw money equivalent to 8% of its net asset value (NAV) withdrawn. The firm, and employees, put $400m in to maintain confidence.
Blue Owl, another credit manager, closed investors’ usual quarterly redemption window, largely due to unprecedented demand. The fund’s managers have decided that they will wind down the fund and return money back to investors over time, whether that want it or not.
Several other listed funds run by big names, such as Blackrock and KKR, have slashed dividends and written down asset values. This week, both Morgan Stanley and Cliffwater limited withdrawals from their credit funds.
So, what has happened? In recent years, there has been a big growth in private credit funds in the USA aimed at individual retail investors. With interest margins low and fees from public investment products diminishing due to the shift to passive investing, financial institutions spied an opportunity for chunky fees by offering private credit investment to retail investors.
The liquidity–return trade-off
Such investors are attracted by the potential for higher returns that private credit funds offered compared to public funds. The need to provide higher returns was related partly to the higher credit risk associated with the lending, but also to the illiquidity of the private credit assets that the funds invested in.
While much attention in the financial media has focused on the heightened credit risk in private funds, less attention has been given to the liquidity issue. At the heart of the private credit business model is a level of illiquidity that individual retail investors would not be comfortable with. The liquidity–return trade-off is one of the fundamental concepts in finance. Investors must be prepared to trade-off liquidity for higher returns, and vice versa. They cannot have both.
This blog will discuss that trade-off in the context of private credit funds and its lessons for retail investors, particularly in Europe where institutions are gearing up to offer such investment products.
Liquidity preference
One of the fundamental concepts in finance is the maturity mismatch between the preferences of ultimate lenders (typically households) and the requirements of ultimate borrowers (typically firms, but also households and governments too). Typically, lenders want to ‘lend short’ while borrowers want to ‘borrow long’. The financial system reconciles this mismatch by providing two important economic functions – maturity transformation and liquidity provision.
Banks offer maturity transformation by offering current and other accounts to individuals where deposits can be redeemed at short notice. These institutions use the deposits to finance long-term lending for a variety of purposes; examples include property, investment in capital or day-to-day spending. Their effective management of this process is important economically for the smooth running of the payments mechanism and for economic growth.
But, to fulfil this, banks have to hold a mixture of assets with varying degrees of liquidity – some highly liquid, such as cash and short-term government debt instruments, and some illiquid, such as long-term loans. Liquidity is such an important issue for banks that their assets are listed on their balance sheet in order of liquidity – from most liquid to least liquid.
However, there is an inverse relationship between liquidity and expected return. Banks and their customers have to sacrifice return if they want higher liquidity. Therefore, liquid assets tend to offer a low rate of return and illiquid assets a higher rate of return. Consequently, in order to retain sufficient liquidity, the overall return banks can generate is limited compared to a situation where they invest wholly in illiquid assets.
If individuals want to invest directly in long-term financial assets, such as debt and equity, there must be a secondary market where these can be bought and sold – the stock market. Without this mechanism providing liquidity, individuals are less likely to invest in these assets in the first place. Few would want to wait for a debt security to mature or hold a share in perpetuity. Secondary markets mean they don’t have to.
Liquidity and private credit
Private credit funds have existed for a long time as part of the shadow banking sector and have grown in scale. Such funds invest in non-tradable, long-term illiquid loans as a parallel to the better-known private equity sector. Traditionally they have been targeted at institutional investors, who are more comfortable with the higher credit risk and illiquidity involved.
However, while institutions are prepared to forgo liquidity for many years in expectation of higher returns, individual retail investors are not – they have a higher liquidity preference. Funds tailoring private credit funds acknowledged that individual investors required a liquidity incentive to invest. Since there is no liquid secondary market to facilitate liquidation, private funds aimed at such retail investors offered quarterly redemption opportunities. The industry standard settled on around 5% of a fund’s value.
However, offering these ‘liquidity windows’ creates a tension in the private credit business model. Private credit operates on the basis of illiquidity in return for higher returns. This includes borrowers prepared to pay a higher interest rate on debt to avoid exposure to the glare of public market scrutiny.
Further, the prices of private loans are not ‘marked-to-the-market’ like publicly traded debt, so they are not correlated with public markets. This enables fund managers to work out credit problems over time rather than be forced into fire sales to meet the liquidity needs of investors.
Offering liquidity confounds that. To do so, private credit funds end up operating like quasi-public funds. They have to hold sufficient liquid assets to cover redemptions. Indeed, regulations for such funds in Europe are proposing a minimum of 20% of assets in liquid investments so there is a reserve to meet redemptions. But, by doing so, funds will not be able to generate the promised returns. Indeed, returns may be not much higher that that offered by public traded funds.
Further, providing quarterly redemption windows requires fair and timely valuations of the fund. Irrespective of perceptions around credit risk, if investors feel that the valuation is generous then many will want to take advantage of the liquidity window to redeem and no limit on withdrawals, be it 5%, 10% or whatever, is sufficient. However, with no secondary market mechanism to remove the excess demand, those told they cannot redeem their investment will only increase their demands for liquidity further and exit at the next available opportunity.
This irreconcilable tension in offering private credit funds to retail investors is being recognised. Not only are funds like Blue Owl being wound up, but the share prices of providers in the USA have fallen sharply as markets realise that the anticipated returns from selling private credit to retail investors are unlikely to be realised. Blackstone’s market capitalisation has halved from $250 billion at the end of 2024 to $134 billion on 11 March 2026.
But this is the moment when private credit funds are being offered to retail investors in Europe. The lesson for European retail investors from the US experience is that you can’t have high liquidity and high return. As with most allocation decisions, there is a trade-off.
Articles
Questions
- What is maturity transformation? Explain how banks conduct maturity transformation.
- What is liquidity provision? Explain how secondary financial markets provide liquidity.
- Explain why private credit funds offer a higher expected return than public ones?
- Analyse the pressures on profit margins in public markets which led financial institutions to offer private credit funds. In doing so, consider the ethics around offering such a product to retail investors.
- Explain why offering such funds to individual (retail) investors has not worked.
When we think about suppliers and retailers working together, we usually imagine negotiations over things like the price a retailer pays for products, the quantities ordered, or delivery schedules. However, some suppliers do much more than simply supplying products. In fact, suppliers to many supermarkets also advise them on which brands to stock, how much shelf space each brand should get, and which products to promote. In this role, known as a ‘category captain’, a supplier can influence not only its own products but also those of its competitors within a specific category of products.
For example, if Red Bull were acting as a category captain in the energy drinks category for a supermarket like Tesco, it could also advise on where its competitor, Monster Energy, appears on the shelves, or even whether it appears at all!
Sounds problematic? Arrangements like these are an example of vertical relationships between suppliers and retailers, something economists often study. Like other vertical arrangements, such as exclusive dealing, they can have both benefits and drawbacks. For example, while a category captain can result in efficiency gains, allow for a more organised category of products and improve consumer choice, it also raises questions when the supplier giving the advice also competes with the products it is advising on.
That is exactly what the European Commission (EC), the EU’s competition authority, began examining in November 2025, when it opened an investigation into potential anticompetitive conduct by Red Bull.
One of the key concerns is whether Red Bull used its role as a category captain to disadvantage competing energy drink brands.
Category management is common … but novel for enforcement
The practice of appointing a category captain is not new. Many large supermarkets appoint category captains from major consumer goods suppliers. For example, firms such as Kraft Foods and Procter & Gamble have long taken on category management roles in a range of consumer-packaged goods categories.
However, despite how common these arrangements are in retail, this is the first time the EC has formally investigated whether a supplier has misused its category management role to limit or disadvantage competing products, and it has said it will treat the case as a priority.
How Red Bull could be disadvantaging competitors
According to the Commission, Red Bull appears to hold a dominant position in the wholesale supply of branded energy drinks, at least in The Netherlands. In competition policy, a firm which holds a dominant position has a special responsibility to ensure that its actions do not unfairly restrict competition. Regulators are investigating whether the company abused this position by offering financial or non-financial incentives and/or leveraging its role as a category captain to disadvantage competing energy drinks sold in larger can sizes.
At an extreme, a category captain could advise a supermarket to stop selling a competitor’s product entirely, effectively excluding the brand from the shelves and potentially reducing consumer choice.
But there are also more subtle ways Red Bull could disadvantage its competitors. Insights from behavioural economics suggest that the placement of products on shelves can strongly influence what consumers notice and buy. By reducing the visibility of rival energy drinks, for example, products in less prominent locations are less likely to be purchased and are therefore disadvantaged.
These practices matter for consumers as well as competitors. By limiting which products are stocked or how prominently they are displayed, dominant suppliers could reduce choice and potentially keep prices higher.
Growing scrutiny of category management?
Competition authorities seem to be paying closer attention to how suppliers influence the management of product categories in retail stores. In April 2025, the Belgian Competition Authority fined three large pharmaceutical companies more than €11 million for co-ordinating the placement of over-the-counter medicines in pharmacies. The companies had created shelf layouts that favoured their own products, disadvantaged competing brands, and monitored whether pharmacies followed the plans.
Thus far there have not been many European cases related to category management.
Why the Red Bull case matters
The Red Bull investigation is the first EC case focusing specifically on the potential misuse of category management by a dominant supplier. There is currently little guidance on how these arrangements should be assessed under competition law, meaning the case could set an important precedent.
If the Commission concludes that category management was used strategically to disadvantage competitors, Red Bull could be found to have abused its dominant position under EU competition rules. Such a decision could reshape supplier–retailer relationships across Europe.
Articles
Questions
- Beyond prices, how might dominant suppliers influencing shelf space affect competition and consumer choice?
- How might category captain arrangements affect barriers to entry?
- What are the potential efficiencies of supplier-led category management, and what are the possible anti-competitive effects?
- What guidelines or safeguards could regulators provide to ensure category captains deliver the potential efficiencies without harming competition?
With relentless bombing of Iran by Israel and the USA, and with Iranian counterattacks on Gulf states, the costs of the war are mounting. The most obvious are in terms of human lives, injuries and suffering. But there are significant economic costs too. Some of these are immediate, such as the rising price of oil and hence the costs of fuel, or the fall in stock market prices. Some will be longer term, depending on how the war develops. For example, prices could rise more generally as supply chains are disrupted.
The impacts will vary across the world and across markets. The most obvious markets to be affected are those where significant supply comes from the Persian Gulf. Approximately 20% of total global oil consumption passes through the Strait of Hormuz, which connects the Persian Gulf with the Arabian Sea and the Indian Ocean.
Oil prices rose considerably in the days following the start of the war on 28 February, with Brent crude, a key measure of international oil prices, rising from $71.3 on 27 February to a peak of $119.4 per barrel by the morning of 9 March – a rise of 67%. It was possible that they would rise even further in the short term. However, prices fell back substantially later on 9 March after G7 finance ministers declared that the group ‘stands ready’ to release oil from strategic reserves if needed. By late in the day, the price had fallen to around $90. (Click here for a PowerPoint of the chart.)
However, despite the announcement on 11 March that 32 countries had agreed to release 400m barrels of oil reserves, oil prices began rising again and reached $100 on 12 March after three tankers had been struck in the Gulf, two of them close to the Strait of Hormuz. With Iran pledging to keep the Strait closed, there were worries that the release of oil reserves would provide only temporary relief. Just over 20m barrels of oil normally pass through the Strait of Hormuz. The 400m barrels released from storage is the equivalent, therefore, of only 20 days’ worth of lost oil from the Gulf.
Rising oil prices will drive up inflation. For those countries with a heavy dependence on Gulf oil, particularly countries in Asia, there could be significant supply problems. For oil exporters in the Persian Gulf, with tankers unable to traverse the Strait of Hormuz, the economic impact is huge. Oil exporters outside the Gulf, such as Russia, Norway and Canada, however, will gain from the higher prices. Clearly the size of these effects will depend on how long the conflict continues and how long the Strait of Hormuz remains closed.
And it is not just oil that is affected. Other products, such as liquified natural gas (LNG), petrochemicals, industrial materials, fertilizers, metals and minerals are transported through the Strait of Hormuz. Gulf countries import much of their food through the Strait.
Cuts in supplies of oil and other products represent an adverse supply shock. Such shocks push up prices (cost-push inflation), while adversely affecting aggregate output. This can lead to stagflation – a combination of higher inflation and stagnation or even falling output. Central banks with a simple mandate to keep inflation to a target are likely to raise interest rates, or at least delay in reducing them. In the USA, with a dual mandate of controlling inflation but also maximising employment, the response may be less deflationary, depending on the judgement of the Federal Reserve.
Uncertainty
There is great uncertainty about how long the conflict will last. There is also a lack of clarity and consistency from the US administration about its war aims. This uncertainty has affected financial markets, which have seen considerable volatility. Stock markets have seen widespread falls, with airline, travel and AI-heavy stocks being particularly vulnerable.
If the war is concluded relatively swiftly, the economic effects could be relatively small. If the war continues, and especially if the Gulf countries are drawn further into the conflict and if the conflict spreads to other countries, the economic effects could be much more substantial. A prolonged conflict could see oil prices remaining above $100 per barrel, potentially increasing global inflation by 1 percentage point or more. This would slow or halt the move by central banks to cut rates and thereby reduce global economic growth – potentially, as we have seen, leading to stagflation.
Then there is the issue of a potential new international refugee crisis. If the economic and political system in Iran deteriorates rapidly, this could trigger a wave of migration to neighbouring countries, such as Turkey, already hosting large numbers of refugees. Many could seek sanctuary further afield in Europe, with several countries already facing a backlash against immigration. The political and economic effects of this on host countries could be significant – but as yet, highly uncertain.
Articles
- Assessing the global economic impact of the Middle East war
ING, Carsten Brzeski, Warren Patterson, James Knightley and Deepali Bhargava (5/3/26)
- How will the Iran war affect the global economy?
Chatham House, Neil Shearing (6/3/26)
- Iran war is latest threat to a global economy rattled by Trump
Aljazeera, John Power (7/3/26)
- Why an Iran war inflation shock could wreck global economic recovery
The Guardian, Phillip Inman and Kalyeena Makortoff (8/3/26)
- Why has the Iran war sparked fears of stagflation for the global economy?
The Guardian, Luca Ittimani (9/2/26)
- Why surging oil prices are a shock for the global economy – but not yet a crisis
The Conversation, Stella Huangfu (3/3/26)
- Why the price of oil matters more than you might think
BBC News, Natalie Sherman and Mitchell Labiak (10/3/26)
- Strait of Hormuz: Factsheet
IEA (February 2026)
- Strait of Hormuz: Gulf states’ food security is at immediate risk but wider shortages could push up consumer prices globally
The Conversation, Gokcay Balci and Ebru Surucu-Balci (4/3/26)
- Faisal Islam: Oil price spiral may be slowed but not stopped by G7 emergency move
BBC News, Faisal Islam (9/3/26)
- What on earth is going on with the oil price?
BBC News, Jemma Crew (12/3/26)
- Asia scrambles to confront energy crisis unleashed by Iran war – with no end in sight
The Guardian, Callum Jones (12/3/26)
- The grim choice facing the Trump administration: Economic or naval collapse?
CNN, Phil Mattingly and Zachary Cohen (9/3/26)
- How the Iran Conflict May Fuel a New International Refugee Crisis
Forbes, Andy J Semotiuk (5/3/26)
Data
Questions
- Who are the biggest gainers and losers from disruption to oil supplies from the Persian Gulf?
- Illustrate the effect of the current oil price shock on an aggregate demand and supply diagram (either static or dynamic).
- Why is the Iranian war likely to be less damaging to the European economy than the Ukrainian war has been?
- Why have AI-related stock prices been vulnerable to the uncertainty caused by the Iranian war?
- How are the Bank of England and the Federal Reserve Bank likely to respond to the rising price of oil and the broader economic effects of the war? Why might their responses be different?
- What is the likely impact of the Iranian war on global economic recovery?
- How might the Iranian war affect global economic alliances?
- How is the current oil price shock likely to affect the eurozone? Will it be different from the oil price shock that followed the Russian invasion of Ukraine?
- What are the likely economic effects of large-scale migration caused by the war?
A previous post detailed how Netflix and Paramount Skydance were competing to acquire part or all of Warner Bros. Discovery (WBD). In December 2025, Netflix announced that it had agreed a deal to buy WBD’s studio and streaming service business. However, Paramount has still pursued a hostile takeover of WBD.
In mid-February 2026, it emerged that WBD had reopened talks with Paramount. Paramount was given a week to make its final offer. Then, under the agreed deal, Netflix would have the right to adjust its bid. Things have developed quickly since then.
Paramount raised its offer price by $1 per share making the deal worth a total of $111bn. WBD stated that this was superior to Netflix’s offer and Netflix declined to increase its bid. Netflix executives stated that:
This transaction was always a ‘nice to have’ at the right price, not a ‘must have’ at any price.1
Paramount will also pay Netflix the $2.8bn fee WBD owes Netflix for terminating the deal.
Whilst it appears Paramount has won the race to acquire WBD, the deal still needs regulatory clearance from competition authorities in the USA and Europe. Paramount CEO, David Ellison, stated that the proposal offered WBD shareholders ‘superior value, certainty and speed to closing.’2
Should the deal go through, the merged company would be in a powerful position as one of the few remaining Hollywood film and television studios.
References
- Paramount set for $111bn Warner Bros takeover after Netflix drops bid
BBC News, Danielle Kaye and Nardine Saad (26/2/26)
- Ibid
Articles
Questions
- What are the similarities and differences between Netflix’ and YouTube’s business models? How close substitutes do you think they are?
- Do you think cinemas are a closer or more distant substitute to Netflix than YouTube?
- Which of the possible deals, do you think, raised the most competition concerns? What might be a possible remedy that could alleviate these concerns?
- Was WBD’s decision to accept the Paramount takeover purely determined by the size of Paramount’s bid?
- What is the significance of legacy assets to the acquisition of WBD?
Unemployment in the UK reached its highest level in nearly five years at the close of 2025, according to new data from the Office for National Statistics. Figures show the unemployment rate rising to 5.2% in the three months to December, up slightly from 5.1% in the preceding quarter.
This marks the highest unemployment level since the pandemic, coinciding with a slowdown in wage growth and increasing speculation that interest rates may soon be lowered.
Youth unemployment
However, young people are taking the heaviest hit, with unemployment climbing to 16.1% among those aged 16 to 24. (Click here for a PowerPoint of the chart.) This is the highest level in more than a decade, including the spike seen during the pandemic. Economists largely attribute this trend to rising payroll costs, which they say are discouraging employers from offering entry level roles. Long-term youth unemployment is also worsening, with recent data showing that a growing share of unemployed young people have been out of work for over 12 months, highlighting deeper and more persistent barriers to re entry.
At the same time, although wages for those in work continue to grow faster than prices, the pace of wage growth is steadily slowing, adding further pressure on young people already facing the most challenging labour market conditions in years. According to ONS data, the annual growth in average weekly wages, excluding bonuses, slowed to 4.2% in the last three months of 2025. Private-sector wage growth eased to 3.4%, bringing it closer to the 3.25% rate that the Bank of England believes is consistent with its 2% inflation target.
The impact on interest rates
The Bank of England is watching the slowdown in the UK jobs market closely as it gauges when next to lower its interest rates. In February 2026, the Monetary Policy Committee voted to hold the base rate (Bank Rate) at 3.75%. However, the committee voted with a majority of 5-4, with four members voting to reduce the rate to 3.5%.
The Bank of England uses interest rates as a policy tool to control inflation, the rate at which general prices rise in the economy. The current rate of inflation of 3.4% is above the Bank of England’s target of 2%.
In addition to the split vote, some economists believe that the easing in pay growth makes it likely that Bank Rate will be cut at the next meeting on 19th March. Paul Dales, chief UK economist at Capital Economics, said the fall in wage growth ‘supports the idea that the Bank of England has at least a couple more interest rate cuts in its locker’. A decrease in interest rates will be welcomed by investors.
What is behind the increase in youth unemployment?
Young people always tend to be the most impacted by a downturn in hiring. But economists warned that the rise in youth unemployment was a sign that employers are being more cautious about hiring younger workers. Openings for low-skilled entry-level roles and for new graduates have dropped steeply. Many businesses have slowed hiring due to an increase in costs because of measures in Chancellor Rachel Reeves’s last two Budgets. Businesses claim that the combination of increases in employer National Insurance contributions and a rise in the minimum wage mean they are facing higher payroll costs.
Peter Dixon at the National Institute for Economic and Social Research said, ‘there are indications that younger workers in particular are being priced out of the market’, supporting the explanation that raising the minimum wage might also be disincentivising the hiring of young people.
The ONS reported that the retail and wholesale sector saw the biggest fall in the number of workers on company payrolls, with 65,000 jobs lost in the sector since January last year. Meanwhile, health and social work saw the biggest rise in payrolled workers of any sector, adding 39,000 jobs in the year to January. Financial analyst at AJ Bell, Danni Hewson, suggested that those leaving the retail sector were now entering healthcare, with both sectors employing large numbers of women. However, she also warned that a recent surge in investment in artificial intelligence could hit young people the hardest as it could result ‘in a scarcity of entry level posts’ (see the blog Will AI make the world less equal?.
Job vacancies
Job vacancy data across the UK indicates a significant cooling in labour demand. According to the latest ONS figures, vacancies fell from 736,000 in the three months to December to 726,000 in January, signalling continued weakening in hiring activity. According to the job search site, Adzuna, the number of vacant positions has dropped to its lowest level in five years, with job listings sliding 3% in January to 695,000, marking the first time vacancies have dipped below 700,000 since early 2021. Notably, graduate opportunities have fallen below 10,000 for the first time since Adzuna started tracking in 2016, underscoring the deepening challenges for new entrants to the workforce.
This downward trend in job openings extends patterns seen throughout late 2025, with vacancies down 16% from the previous January and nearly 20% lower than six months earlier. This coincides with a rise in unemployment to 5.2%, slower wage growth, and a growing concern that young people are disproportionately affected as hiring slows. As opportunities shrink, competition has intensified: there are now 2.4 jobseekers per vacancy, up from 2.27 in December, with the most sought-after roles including warehouse staff, healthcare support workers, lorry drivers, labourers and kitchen assistants.
How can the situation be improved?
Pat McFadden, Secretary for Work and Pensions, has commissioned the former Health Secretary Alan Milburn to lead a review into the causes of rising youth inactivity. There will be a particular focus on mental health issues that are pushing young people out of education and employment. This initiative responds to the growing number of young people not in education, employment, or training (NEETs), many of whom are now classified as inactive rather than unemployed. Some receive health-related benefits and are therefore not required to look for work, while others fall outside the benefits system entirely, making them harder to identify and support.
However, Pat McFadden said there was ‘more to do to get people into jobs’, and that tackling youth unemployment is a key government priority. He added that Labour was working to make it easier for young people to find and secure an apprenticeship, supported by a wider package of reforms. The reforms announced by McFadden include creating 50,000 additional apprenticeships. The government will also expand support for 350,000 people to move into work or training in sectors such as care and construction, with the risk of losing benefits if they refuse. They also include the provision of 55,000 state-funded, six-month work placements for the long-term unemployed.
While these measures are widely seen as necessary, campaign groups argue the government should go further by extending its ‘Youth Guarantee’ to cover all young people up to age 24, rather than ending at 22.
However, as Alice Martin, head of research at Lancaster University’s Work Foundation, notes, initiatives designed to help people return to the labour market have limited impact ‘if the jobs aren’t out there.’ Even graduates are finding that opportunities are scarce, and for those leaving education with few qualifications, the situation is even more challenging. Sectors such as retail, once a reliable source of first jobs, have been in long-term structural decline, a trend that is now accelerating and further narrowing the pathways available to young people entering the workforce.
The situation has prompted government discussions about postponing the planned rise in the minimum wage for 18- to 20-year-olds to address employers’ concerns and encourage more youth employment. However, on Wednesday, Keir Starmer stressed that Labour remains committed to its manifesto pledge to align the pay of younger workers with that of older employees. The Prime Minister confirmed that the promise to ‘remove the discriminatory age bands’ in the minimum wage system still stands, and that the increase scheduled for April will proceed as planned.
Starmer said ‘We’ve made commitments to young people in our manifesto, and we will keep to those commitments, including the commitment that we would make sure that the living wage and minimum wage will go up this April, which we can absolutely confirm to you will happen.’
Unemployment outlook
Multiple economic forecasts predict that unemployment will to continue to rise in 2026. The most frequently cited projection places the 2026 unemployment rate around 5.2%–5.5%. However, some economists expect businesses to regain confidence and begin hiring again later in the year, supporting a gradual stabilisation in job markets.
Yet risks remain significant: if that recovery fails to materialise, unemployment could edge toward 6% by the end of the year, with forecasts from JP Morgan suggesting unemployment may reach 2 million in the first half as firms delay recruitment following the recent rise in the employers’ National Insurance rate. This environment is proving especially challenging for young people, with early career opportunities among the first to disappear and delayed entry into work potentially limiting long-term earnings and progression.
As hiring becomes more cautious and entry-level roles tighten, the path into the labour market risks becoming narrower, underscoring the need for policies and conditions that support both employer confidence and opportunities for new entrants.
Articles
FT Articles (subscribers only)
Data
Questions
- Explain why youth unemployment has risen more sharply than overall unemployment at the end of 2025.
- What are the costs to the individual of being unemployed?
- What are the wider non-monetary costs to society?
- Explain the main financial costs to the wider economy of a rising unemployment rate.
- Assess the likely impact of slowing wage growth on the Bank of England’s decision about whether or not to cut interest rates in early 2026.
- Discuss how falling job vacancies, particularly graduate and entry‑level opportunities, might affect long‑term labour market outcomes for young people.
- Evaluate the effectiveness of government policies such as expanding apprenticeships, increasing work placements, and reviewing youth inactivity in reducing youth unemployment.
