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Britain is slipping down the global league table for youth employment amid a dramatic rise in worklessness that is putting a generation’s future at risk, research has warned.

Sounding the alarm over a worsening youth jobs crisis, the report from the accountancy firm PwC said Britain’s economy was missing out on £26bn a year because of sharp regional divisions in youth joblessness.

In its annual youth employment index, it said the UK was falling behind other advanced economies amid a deterioration in the youth jobs rate to a 10-year low while other comparable nations were making progress.

Out of the 38 nations in the Organisation for Economic Co-operation and Development (OECD), it said the UK had dropped four places from a year earlier to 27, losing ground to countries including Mexico, France and Estonia.

Ministers are growing increasingly alarmed over the youth jobs market as the number of 16- to 24-year-olds who are not in education, employment or training (Neet) has climbed to almost a million.

Labour has announced plans to tackle the crisis through a raft of policy measures, including a “youth guarantee” of a six-month paid work placement for every eligible 18- to 21-year-old who has been on universal credit and looking for work for 18 months.

Pat McFadden, the work and pensions secretary, announced on Sunday that 350,000 new training or workplace opportunities would be offered to young people on universal credit, but added there would be “sanctions” for claimants who did not engage.

However, business leaders have said that tax rises, a higher minimum wage, and the government’s employment rights bill is driving up the cost of hiring young people – putting them at risk of being priced out of work.

Clare Lombardelli, a deputy Bank of England governor, said this week she was increasingly worried about the outlook. “There is striking data about what is going on with young people,” she told MPs on the Commons Treasury committee on Tuesday. “I am afraid it is not a rosy picture for the UK.”

Official figures show youth unemployment has increased from 14.8% a year ago to 15.3%, the highest level outside the Covid pandemic since 2015, and more than three times the headline jobless rate for people over the age of 16. Long-term youth joblessness is also at a decade high.

Guardian analysis last month showed almost half of all jobs that have been lost from company payrolls since Labour came to power are from those under the age of 25.

PwC said that reversing the trend could boost the economy. If the UK regions with the highest Neet rates were able to narrow the gap with Northern Ireland, which at 9% has the lowest rate, it estimated this could add £13bn to UK GDP. Closing the gap entirely would add up to £26bn.

It said London and Scotland had the most to gain, reflecting the large number of young people classified as Neet in these areas, where as many as 15% and 16% of all 16- to 24-year-olds are neither working or learning.

Marco Amitrano, the senior partner at PwC UK, said: “A generation’s future is at risk – as is the UK’s productivity and prosperity. Given the UK’s sliding performance on youth employment, a serious gear-change is needed.”

The government was approached for comment.

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Google DeepMind will establish its first “automated science laboratory” in the UK, as it signs a new partnership with the British government in a move designed to enhance the use of artificial intelligence across the country.

The US Big tech group’s AI unit, run by British Nobel laureate Sir Demis Hassabis, announced on Thursday that it would set up the new materials science lab in 2026.

The lab will focus on using AI tools to develop new materials for superconductors, solar cells and semiconductors. DeepMind will also provide local scientists with “priority access” to its scientific AI tools.

“We think that AI systems are now ready to bridge the gap between digital and actually discovering new materials,” said Pushmeet Kohli, DeepMind’s vice-president for science and strategic initiatives.

DeepMind also signed a memorandum of understanding with the UK as Sir Keir Starmer’s government seeks to boost use of AI in science, education, public services and national security. 

The company, which was founded in London before being acquired by Google in 2014, has pledged to work more closely with the UK’s AI Security Institute (AISI) which evaluates and researches the safety of AI systems. 

DeepMind will offer access to its models to AISI researchers to jointly develop techniques to monitor an AI system’s chain-of-thought reasoning process, where the model solves problems step-by-step. It will also work with AISI to understand the social and emotional effect of its models on users, as well as the economic impacts of AI adoption. 

In return, the UK government will “explore” how teachers can use Google’s Gemini AI model for teaching England’s national curriculum. DeepMind will also offer technical expertise and access to its models to modernise public services.

“This partnership will make sure we harness developments in AI for public good so that everyone feels the benefits,” Starmer said.

“That means using AI to tackle everyday challenges like cutting energy bills thanks to cheaper, greener energy and making our public services more efficient so that taxpayers’ money is spent on what matters most to people.” 

The UK has also sought deals with AI companies to attract new investment into the country. It signed a technology pact with the US government to boost advances in science and AI research in September. 

AI models made by US-based Anthropic are being used to help citizens find UK government information. Meanwhile, Canada’s Cohere has pledged to also help the British public sector and defence industries use its technologies.

OpenAI has promised to “explore” developing research and development infrastructure in the UK, after setting up its first office outside the US in London two years ago.

Critics have argued that the UK is too close to Big Tech groups and should go further to regulate AI.

“We need to ask who is setting the agenda for the UK’s future with AI,” said Imogen Parker, associate director at the Ada Lovelace Institute, a research body.

“In the absence of independent regulation or scrutiny, we’re at the mercy of technology companies’ commercial interests aligning with what the public want.”

She added: “Google partnering with the government to explore how to refine its own Gemini model may or may not benefit teachers and pupils, but it will undoubtedly benefit Google.”