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High Immigration Levels Fail to Solve UK Labor Shortages and Inflation

Written by: Meredith Montgomery
Photo by: Ivan Bandura at Unsplash

Last update: 27 november 2023

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The UK is seeing near-record levels of immigration, with 672,000 more people moving to the country than leaving in the year up to June. However, this influx of newcomers has failed to ease labor shortages contributing to inflation because most of them lack the skills needed by employers. Only one out of every five of these arrivals has come to work, while the majority consists of students, dependents, and refugees.

S&P Global, a credit ratings agency, predicts that this skill mismatch will keep the labor market tight until 2024, causing wages to continue rising and inflation to persist. Brexit has made the situation worse by introducing inefficiencies in the labor market, leading to more EU migrants leaving the UK than arriving.

The tight labor market has forced UK employers to offer higher wages to attract workers, which has raised concerns at the Bank of England about the risk of long-lasting high inflation. S&P Global anticipates that the Bank of England will lower interest rates in the latter half of 2024 to address this issue, with financial markets already pricing in the possibility of a rate cut in August.

This move comes despite some Bank of England officials expressing reservations about considering monetary policy easing at this stage. The UK government, under pressure to reduce immigration, faces the challenge of balancing immigration policies with the need for skilled workers to fill job vacancies.

Source: Bloomberg


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