LONDON – Michael Saunders, one of Britain’s most prominent economists and a member of the Bank of England’s Monetary Policy Committee, nailed the problems that limiting EU immigration into the UK after Brexit could have.
In a speech in the Welsh capital, Cardiff, on Thursday, Saunders discussed the impact that net migration into the UK has had on output in the British economy in recent years.
“Over the last five years, roughly 60% of job growth and all the growth in the workforce has been accounted for by people born outside the UK,” he said.
Those workers, Saunders noted, have been “drawn by (among other things) the UK’s relatively buoyant pay and employment levels, amidst free movement of EU labour.”
Workers from EU countries also consume goods and services, buoying the economy.
“Since workers are also consumers, inward migration has also supported economic growth in the UK,” he said.
One of the reason’s Britain’s economy has been able to grow so strongly in the years since the end of the financial crisis is that consumption has been high, driving the recovery. Foreign workers have helped boost consumption, and therefore the wider economy, significantly.
Without those workers, the economy might suffer.
Saunders suggested that this may already be happening on a small scale, saying that the consumer slowdown seen since the referendum, which has largely been down to surging inflation pushing up prices for everyday goods, may have also been impacted by “the slowdown in inward migration,” seen in recent months, as, on aggregate, more consumers leave the UK than are arriving.
“There are now signs that EU nationals are less willing to move to the UK for work,” he said, citing figures produced by the ONS last week, which showed that the overall number of EU citizens coming to the UK has dropped significantly since last June.
“This may reflect, among other factors, falling jobless rates in other EU countries, the shift in relative pay levels caused by sterling’s depreciation, plus uncertainties over post-Brexit job opportunities and migration status for EU nationals in the UK,” Saunders added.
Inward migration could slow even more, Saunders said, in the event of a “bumpy” Brexit. He did not specify exactly what would cause a bumpy ride.
“I do not want to dismiss risks that the Brexit process might be bumpy, and could undermine business and consumer confidence. In such a scenario, inward migration might also be lower, limiting labour supply and demand,” he told the audience of business people.
Prior to the referendum, immigration was most often cited as the biggest concern for those wanting to leave the EU, although that has now shifted, as pointed out by Samuel Tombs of Pantheon Macroeconomics in a note circulated earlier this week.
During the speech, Saunders, who is one of the MPC’s biggest hawks, reiterated his belief that the bank should raise interest rates, saying that the “prospective tradeoff” between inflation and spare capacity in the British economy has passed the “limits of tolerance,” that he is willing to accept.
“In my view, we should not maintain an overly loose stance,” he said.