Lower immigration will hit UK growth and raise borrowing
Falling migration threatens growth, strains public finances, and leaves productivity carrying the burden
We expect UK net inward migration will dip below 100,000 this year – the lowest level since 1997. The political climate suggests net inflows will stay low for at least the remainder of the current parliament that ends in 2029.
If the trend holds, the cumulative impact of lower immigration means the UK population will be 1.5mn (2.1%) lower than the official principal projection in 2030.
If the official forecast from the Office for Budget Responsibility moves into line with ours, that would cut its projection for the level of potential output in 2029-2030 by 1ppt. This implies that government borrowing would be £19bn (0.5% of GDP) higher, wiping out most of the Chancellor’s headroom. The OBR could cut its migration assumptions in this autumn’s Budget.
The UK’s ageing population means that potential output growth must rely less on increasing labour supply and more on productivity gains. We’re hopeful that advances in AI can help the UK improve its productivity growth eventually, but not as much as the OBR assumes.
