UK GDP growth stayed steady at 0.4 per cent while fall in migration would harm economy, says Niesr

 
Jasper Jolly
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Migrants are net contributors to the UK economy, says Niesr (Source: Getty)

Migration controls could leave the UK economy up to 1.19 per cent poorer by the end of this Parliament, says an influential think tank, as it estimates that growth in the last three months was unchanged at 0.4 per cent.

The growth rate of UK gross domestic product (GDP) for the three months ending in November was 0.4 per cent, steady with the same measure last month, according to the National Institute of Economic and Social Research (Niesr).

Yet future GDP growth prospects could be significantly hit if migration is reduced as the UK leaves the European Union, says Niesr in a separate report. GDP per capita could fall by up to 1.6 per cent according to the most extreme scenario, in which there is no preferential free movement for EU citizens – a so-called “hard Brexit”.

Read more: Cuts to record immigration could raise UK taxes

Jonathan Portes, a Niesr fellow and author of the report, said: "Our estimates suggest that the negative impacts on per capita GDP will be significant, potentially approaching those resulting from reduced trade".

Niesr predictions on the cumulative effects to 2030 of reduced immigration

Scenario Effect on GDP Effect on GDP per capita Effect on wages
Model 1 Central ("soft Brexit") 2.73% 0.92% 0.51%
Model 1 Extreme ("hard Brexit") 4.35% 1.53% 0.82%
Model 2 Central ("soft Brexit") 5.19% 3.38% 0.51%
Model 2 Extreme ("hard Brexit") 8.18% 5.36% 0.82%

The warnings on the economic costs of migration controls come as weak production figures show a slowdown in UK manufacturing. However, Niesr’s analysis of GDP growth in the services sector, which makes up almost 80 per cent of UK GDP according to government figures, made up for falling production.

An index of private services compiled by Niesr rose by 0.4 percentage points compared to a fall of 0.3 points for industry.

Rebecca Piggott, research fellow at Niesr, said: “Recent economic growth has been driven almost entirely by the UK’s broad service sector, supported by robust consumer spending.”

However, the outlook is made significantly worse by the depreciation in value of sterling, which will pass through to consumer prices.

“Looking ahead, we do not expect such buoyant consumer spending growth to persist,” said Piggott.

Niesr projections put GDP growth at 2 per cent per annum in 2016 and 1.4 per cent in 2017, with high inflation at 3.8 per cent at the end of 2017.

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