The grim economics of Brexit: the reduction in immigrants could wipe 2.5 percentage points off UK GDP

People who want Britain to leave the EU in hopes of reducing the amount of immigration into the UK will not like this chart from Simon Wells and Liz Martins, economists at HSBC.

It shows how the UK relies on immigrants to add new tax-paying workers to the rolls, which funds retirement and infrastructure for older, non-working Brits.

The pair published the chart in a review of the government’s budget that attempted to guess the impact of Brexit on UK GDP. They noted:

Much is unknown. However, the OBR’s current forecasts, under which the deficit closes by 2019/20, rely on the ONS’ central scenario, in which net inward migration falls to just under 200,000 by that year, and then stabilises at 185,000 a year thereafter. (It stood at 323,000 in the year to September, of which 172,000 were arrivals from the EU).

But David Cameron’s target is to reduce net inflows to 100,000 a year. 

Immigration is part of the reason why the UK is relatively better placed than many of its neighbours demographically. If it is to fall markedly from the levels the ONS is assuming, then we could see the ratio of net contributors to the public finances to net recipients fall. Potential GDP growth would also fall. 

“Potential GDP growth would also fall”! That doesn’t sound good. Here is how that breaks down in a chart:

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