IMF Deputy: Immigration Can Reduce Inflation


The deputy head of the International Monetary Fund (IMF) has stated that immigration addressing labor market gaps can help reduce UK inflation. In contrast, the prime minister believes legal immigration rates are too high. Gita Gopinath from the IMF emphasised the benefits of welcoming workers in the current high inflation environment.

The government acknowledges the flexibility of the immigration system to adapt to economic needs. According to the Office for National Statistics, net migration in the UK reached a record level of 606,000 in 2022. While headline inflation decreased to 8.7% in April, core inflation, which excludes volatile food and energy prices, rose to 6.8%, the highest among G7 countries. Gopinath highlighted the potential of immigrant workers to fill sector-specific shortages and contribute to lowering inflation.

Official statistics revealed over one million job vacancies in the UK from January to April 2023, with the accommodation and food, health and social work, and professional scientific sectors having the highest vacancy ratios. Economists identify the UK’s tight labor market, compounded by the impact of Brexit and the Covid pandemic, as a key factor driving domestic inflation. Higher-than-expected inflation rates in April led to predictions of a potential interest rate increase by the Bank of England.

However, Gopinath downplayed the notion that the UK has considerably worse core inflation compared to other developed economies. The IMF maintains its 2018 forecast that Brexit would reduce the UK’s long-term growth potential by 2.5% to 4% of GDP, equivalent to £900 to £1,300 per person.

The Treasury emphasised the shift away from unlimited, unskilled migration to a points-based system that grants control over the country’s borders while addressing economic skill requirements. While encouraging businesses to invest in the domestic workforce, the government also adopts flexibility in cases of acute staff shortages, such as including care homes and the seafood industry on the shortage occupation list.