Britain’s Labor Gaps Set to Worsen as Brexit Reduces Migration

  • Fall in immigration to expose skills gap and ageing population
  • Firms want U.K. to prioritize trade and skills in EU talks

Who Will Brexit Impact Most, Consumers or Businesses?

Problems facing the British labor market including skills shortages and an aging population are likely to be exacerbated by Brexit, according to Mercer.

Those gaps will no longer be filled by foreign workers, which are set to decrease in number as the U.K. negotiates a new relationship with the European Union, the consulting firm said in a report. The U.K. faces slow growth or even contraction of its working population as net migration roughly halves from current levels to 185,000 per year from 2020 onwards, it said. It could fall further depending on how much the government plans to restrict migration from the EU.

Prime Minister Theresa May is set to start formal divorce talks with European leaders by the end of next month. She’s indicated the U.K. will leave the single market in order to restrict immigration from the bloc.

“With immigration likely to fall in coming years, particularly from the EU, the veil is lifted as we face a shrinking U.K. workforce,” said Gary Simmons and Julia Howes, the authors of the report.

The report strikes a different tone than the Bank of England, which said last week that there’s more supply in the labor market than it had anticipated, and that wages are unlikely to accelerate as a result. Mercer said a labor shortage could put upward pressure on wages, as well as hit growth. Its analysis is more long-term than that of the BOE’s, whose forecasts go until 2019.

Brexit Beginning

While the central bank upgraded its growth forecasts and kept policy on hold, Governor Mark Carney said that the “Brexit journey is really just beginning” and that there will be “twists and turns along the way.”

Companies should try to increase employment of those currently under-represented in the workforce including women, the disabled and the long-term unemployed, invest in automation and improve productivity, Mercer said.

According to the Bloomberg Sunset Index -- which shows the number of workers per retired person -- the U.K. currently has a ratio of 3.57, better than European countries including France, Sweden, Poland, the Netherlands, and Belgium. It still fares worse than Canada and the U.S., though, which both have on average over 4 workers per older person outside the labor force.

A separate report from Lloyds Bank published Monday showed that businesses want the U.K. to prioritize skills and trade in EU negotiations.

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