Brexit, migration and the UK economy

The OBR yesterday revealed its forecast of the impact of Brexit on UK growth and the public finances. I won’t add to the word count. But one interesting point the extent to which the OBR was happy to highlight the negative impact of the reduction in migration it expects to result from Brexit. While the Treasury under George Osborne was quite prepared to make some rather dubious claims about the impact of Brexit on house prices on the like, it avoided, for obvious political reasons, estimating the much more direct economic impact resulting from falls in migration. 

The OBR has no such inhibitions and gives us this useful table, showing that it is expecting Brexit-induced reductions in migration to have almost as large a negative impact on the public finances as Brexit-induced falls in productivity growth – a £6 billion a year hit to the public finances by the end of the Parliament, and growing.

And arguably the impact could be considerably worse; the OBR only looks at the direct, arithmetic impact of fewer workers, not the indirect impacts. Recent analysis by the IMF suggests that immigration – of both skilled and unskilled workers – boosts productivity growth as well as just the labour force. If the IMF estimates are even roughly right, then the hit to both growth and the public finances will be much more severe.

So what will next Thursday’s immigration statistics (1 December) tell us about whether the OBR’s forecasts – and they are only forecasts – will be translated into reality?  On the face of it, not much. The official measure of immigration, based primarily on the International Passenger Survey, will have figures only to the end of June. So it will tell us if there was any pre-referendum surge – but we already know from other data that if there was, it wasn’t large.  And while Home Office data on visas, asylum claims and so on will cover the period to the end of September, by definition – as long as we have free movement – this doesn’t tell us anything much about EU migration.

However, we will learn something.  Already, in the November Labour Market Statistics, we saw the number of EU born in employment flatten off, while the number born outside the EU increased, reversing previous trends. 

 

A sign that migration from the EU for work has already peaked and is beginning to fall back, as I argued back in August was likely to happen, for a variety of reasons, including of course the Brexit vote? Maybe. Next Thursday's DWP statistics on National Insurance numbers issued to foreign nationals, which will cover the June-September period, will give us the first real hard data on this.  If there’s a significant fall, you read it here first. If it goes up again, this will once again show that forecasting migration is a mug’s game..

And if the numbers do fall, it will show the OBR is on the right track – and we should be worried.  In the short to medium run – given the uncertainty about future trading relationships – it may actually be falls in immigration resulting from Brexit, not trade, that has the biggest impact on the UK economy. We will be producing more detailed analysis on this shortly after the new statistics are released. 

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