Zero Net Migration Could Shrink UK Economy by 3.6% by 2040
The UK economy would be 3.6% smaller by 2040 if net migration fell to zero, according to a stark new forecast from the National Institute of Economic and Social Research (NIESR). The thinktank warns this scenario would force the government to raise taxes to combat a significantly larger budget deficit, estimated to increase by £37 billion.
Population Stagnation and Economic Consequences
NIESR's analysis considers the impact of continuing recent demographic trends, where falling birthrates and a sharp decrease in net migration could see the UK population stop growing at around 70 million by 2030. The latest official figures place the current population at 69.3 million in 2024.
Dr Benjamin Caswell, a senior economist at NIESR, explained: "Net zero migration leaves the economy 3.6% smaller by 2040 and this reflects slower employment growth and a smaller workforce."
Initially, the thinktank notes that real wages and disposable income might rise as firms invest in machinery and boost productivity, with GDP per capita potentially increasing by 2% by 2040. However, these short-term gains would be overshadowed by weaker overall economic growth.
The Fiscal Sustainability Challenge
The core issue identified is that a smaller and ageing population would generate fewer tax revenues, creating a widening gap between public spending and receipts. This would compel the government to borrow more, with the budget deficit projected to rise by approximately 0.8% of GDP.
"Imagine it as like freezing the population where it is, and then just having a continually ageing population," Caswell said. "In the short to medium term, it's not too detrimental, but over 20 years this gap becomes continually larger and larger."
This forecast assumes government spending and tax rates follow the Office for Budget Responsibility's estimates until 2030, with the share of government spending relative to GDP remaining constant thereafter. While certain welfare payments would adjust with population changes, government investment and consumption would not alter significantly.
Policy Implications and Recent Trends
Caswell emphasised that without an increase in the fertility rate, zero net migration "would not be fiscally sustainable for the UK unless there were significant tax rises, and significant tax rises could potentially choke off economic growth."
The analysis follows a dramatic fall in net migration, which dropped from 649,000 to 204,000 in the year to June 2025, largely due to tightened work visa requirements under the previous Conservative government. NIESR suggests that additional measures by the current Labour government, particularly around recruiting foreign workers in health and social care, may further reduce migration numbers.
Simultaneously, the number of births and deaths in the UK have been roughly equal since the start of the decade, meaning any change in the overall population is now primarily driven by migration patterns. This underscores the critical role migration plays in sustaining economic and fiscal stability.
