The two-year initiative by the Mental Health Foundation, which is putting 59,000 into the project, and the Camelot Foundation, which is providing 160,000, will gather evidence from stakeholders over two years. A panel of experts is being set up to head the inquiry.
Dr Marcia Brophy, national inquiry manager for the Camelot Foundation, said: "Mental health services are failing young people because of a lack of a fixed framework of work or protocols on how to deal with young people who self-harm.
"There is a lack of understanding of this behaviour."
Annie Blunt, head of the Mental Health Foundation's youth policy arm, Bright Futures, said: "There's been a lot of concern about self-injury, so we felt there needed to be more pulling together of research and information in the field."
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