Rachel Reeves is facing fresh pressure after a leading business group warned that Britain could see more than 400,000 extra people out of work by the end of Labour’s first term.
In a blow to the Chancellor’s claims that Labour’s economic plan will deliver growth, new forecasts from the British Chambers of Commerce suggest unemployment could climb to its highest level in more than a decade.
The business group predicts the jobless rate will reach 5.5 per cent, equivalent to around two million people without work, by 2028.
Young workers are expected to suffer the biggest hit, with youth unemployment forecast to rise to almost 18 per cent as businesses struggle with rising employment costs and technological change.
The figures are likely to intensify criticism of Ms Reeves, whose tax raising Budget has been blamed by business groups and opposition politicians for increasing the cost of employing staff.
The BCC said labour costs remain the biggest pressure facing companies, with many firms warning that higher payroll bills are making it harder to recruit.
Its analysis suggests there could be almost 167,000 more unemployed 16 to 24-year-olds by the end of 2028 compared with 2024, raising fears that a growing number of young people could be locked out of the jobs market.
The gloomy outlook comes as the BCC cut its growth forecast for this year to just 1 per cent and warned that inflation may remain stubborn enough to keep interest rates elevated for years.
David Bharier, the BCC’s Head of Research, warned that Britain was stuck in a pattern of weak recoveries and faltering business confidence.
He said rising youth unemployment risked damaging the country’s future skills pipeline and undermining long-term economic growth.
The Conservatives seized on the findings, arguing that Labour’s economic policies were making life harder for both businesses and families.
Andrew Griffith, the Shadow Business Secretary, said the forecast pointed to a toxic combination of weaker growth, rising prices and higher unemployment.
“Lower growth, higher inflation and more unemployment is not what the doctor ordered for the UK economy,” he said.
“The Government must not be a bystander, but must reverse some of the tax hikes that are crushing families and businesses.”
His intervention is likely to increase pressure on ministers over measures introduced since Labour took office, particularly policies that have increased costs for employers.
The warning also follows growing concern about the state of the labour market. Former Labour Cabinet minister Alan Milburn recently cautioned that Britain risked creating a “lost generation” unless urgent action is taken to tackle youth unemployment and economic inactivity.
Meanwhile, City economists have become increasingly downbeat about Britain’s prospects.
Sanjay Raja, Chief UK Economist at Deutsche Bank, has warned of another rise in unemployment this summer and said political uncertainty could weigh on business investment and consumer spending.
Manufacturers are also battling fresh inflationary pressures. A closely watched survey found factory costs rose sharply in May, driven by higher energy prices and concerns over supply chains.
While the sector remains in growth, analysts warned the recovery could prove fragile if businesses continue to face mounting costs and economic uncertainty.
For Labour, the figures present an uncomfortable challenge. After promising to kick-start growth and improve living standards, ministers now face warnings that unemployment is heading in the opposite direction, with young people at risk of paying the highest price.
