Immigration cuts risk labour shortages, lower growth and weaker UK GDP

According to economist and former member of the Bank of England's monetary Policy Committee, Sushil Wadhwani, sharp reductions in immigration risk acting as a negative supply-side shock to the UK economy. Evidence suggests key sectors such as healthcare already face labour shortages, so restricting migrant inflows could reduce the effective labour supply, constraining productive capacity and slowing real GDP growth. Firms may respond with higher wages to attract scarce workers, feeding cost-push inflation rather than boosting real GDP per capita. Moreover, falling migration could deter foreign direct investment and reduce demand in sectors like housing and tourism, creating a multiplier effect that further dampens economic growth.

Reform UK’s immigration policies are a significant risk to the UK economy | Sushil Wadhwani | The Guardian

1. Explain how a reduction in immigration could affect wage levels and inflation in the UK economy.

2. Assess two underlying structural problems mentioned in the article that are holding back UK economic growth.

3. Evaluate a macroeconomic and a microeconomic effect of significantly reducing immigration on UK economic growth.