Falling immigration is shrinking Britain’s workforce – and the OBR says the economy will feel it by 2030
Britain’s economy is facing a squeeze from plummeting immigration levels, with the government’s independent forecaster warning that a smaller workforce could drag down growth in the coming years.
In its latest Economic and Fiscal Outlook released on Tuesday (3 March), the Office for Budget Responsibility (OBR) highlighted how recent policy changes are slashing net migration, leading to slower population growth and a hit to the UK’s labour supply.
The OBR’s central forecast shows net migration tumbling from recent highs of around 670,000 in mid-2023 to an average of 350,000 annually over the next five years, before settling at 315,000 by 2027-28.
That’s a sharp drop driven by tighter immigration rules, including restrictions announced after the OBR’s November 2023 forecast, which the Home Office estimates could cut inflows by 300,000 people.
These policies, largely targeting dependants and certain visa categories, are expected to bite hard starting from April 2024, accelerating the decline in new arrivals.
A shrinking pool of workers
The OBR notes that immigrants tend to boost the workforce more than the native population, thanks to their younger age profile and slightly higher participation rates, around 90% for work visa holders compared to the UK adult average of 63%.
Migrants are overwhelmingly of working age (16-64) upon arrival, and recent shifts in visa types, like the graduate route for students, have made them more likely to join the labor market.
But with net migration falling, the UK’s potential labor supply is taking a hit. The OBR’s November 2025 outlook already noted that potential output growth would slow to 1.3% in 2026 partly due to this migration drop, offsetting gains in productivity.
By 2030, the cumulative effect could leave the population 350,000 smaller than previously forecast, translating to fewer workers fuelling economic activity.
To illustrate the risks, the OBR modelled scenarios where net migration varies even more dramatically. In a “low migration” case, settling at just 115,000 annually by 2028-29, aggregate GDP could be 1% to 2.2% lower than the central forecast by the end of the decade, depending on assumptions about productivity and business investment.
That equates to a smaller economy overall, with the workforce shrinking as fewer working-age adults enter the country.
Conversely, a “high migration” scenario with 515,000 net inflows boosts GDP by a similar margin but leaves GDP per person largely unchanged or even slightly lower if capital investment doesn’t keep pace.
“While additional (fewer) migrants generally boost (reduce) the level of aggregate output in the economy, the size of this impact and the effect on per person living standards is highly uncertain,” the OBR said.
Broader economic ripples
This workforce contraction comes at a tricky time for the UK. The OBR’s overall forecast sees real GDP growth averaging 1.5% between 2026 and 2029, down from 1.8% in its prior outlook, partly due to weaker productivity assumptions.
Slower migration exacerbates this by limiting the tax base and consumer spending, while an aging native population and rising inactivity from sickness add further pressure on labor participation.
Think tanks echo the concerns. The Institute for Fiscal Studies (IFS) notes that offsetting slowing migration with productivity gains will be key to medium-term growth, but expects the OBR to downgrade its productivity assumptions further.
For businesses, a tighter labour market could mean higher wages and recruitment challenges in sectors like healthcare, tech, and hospitality, which have relied on foreign talent post-Brexit.
On the flip side, lower migration might ease strains on housing and public services, potentially boosting GDP per capita in some scenarios.
