UK: Slowing labour supply puts the onus on productivity gains

What you will learn:

• We forecast UK GDP growth will average 1.5% a year over the medium-term. Though strong inward migration will continue to provide support, the UK’s ageing population means the economy must rely less on increasing labour supply as a growth driver and more on productivity gains. We’re optimistic that it can improve productivity growth, but it’s not guaranteed.
• The new population projections from the Office for National Statistics look too high to us, considering the importance of temporary factors in driving recent high immigration and policy changes aimed at cutting legal immigration. Our forecasts use the ONS’s low migration scenario.
• Increasing the state pension age has been a key spur to strong labour supply growth since 2010. But the retirement age will rise by just two more years before 2050. Ageing will increasingly weigh on workforce growth because older people participate less.
• Increasing the state pension age has been a key spur to strong labour supply growth since 2010. But the retirement age will rise by just two more years before 2050. Ageing will increasingly weigh on workforce growth because older people participate less.