Fresh blow for Reeves as Labour’s anti-migration policies blamed for sluggish UK economic growth
The world’s leading economic forecaster has warned that Labour’s anti-immigration policies are contributing to Britain’s slow economic growth, in a fresh blow to Chancellor Rachel Reeves.
The dire warning from the Organization for Economic Co-operation and Development (OECD) said the slowdown in productivity, due in part to a decline in workers coming to the UK, meant “momentum is softening” in the economy.
This comes after the OECD said inflation in Britain would be the highest of all G7 advanced economies at 3.5 per cent this year and the second highest after the US next year.
In its annual economic outlook report, it said growth would slow to just 1.2 percent next year from 1.4 percent in 2025 and rise just 0.1 percent to 1.3 percent in 2027.
He also warned that the unemployment rate is expected to reach 5 percent by 2027, while inflation is expected to fall to 2.1 percent in 2027, above the 2 percent target of 2.5 percent next year.
In summary, the OECD claimed that the UK was suffering because “past tax and spending adjustments put pressure on household disposable income and consumption slowed”.
The report stated that “lagging labor productivity and working-age population growth, partly due to slowing inward migration, will continue to weigh on the economy.”
Sir Keir Starmer’s Labor government has ordered a crackdown on both legal and illegal immigration in a bid to boost support for Nigel Farage’s UK Reform.
Last month, Home Affairs Minister Shabana Mahmood announced the “major overhaul” of the immigration system; This includes migrants dependent on benefits, who face a 20-year wait for settlement – four times the current period and the longest in Europe.
Meanwhile, immigrants who pay national insurance contributions will have to wait 10 years to receive settlement status. The government has also introduced a number of visa restrictions, including bans on many countries that do not cooperate with the return of illegal immigrants. In addition, he plans to dilute a human right to family life in order to prevent people from bringing relatives or being allowed to stay too long.
The weak economic data was partly attributed to the measures Ms Reeves introduced, as well as international factors, after a period when she sought to blame previous Tory governments.
It comes at a difficult time for the chancellor, who has been accused of lying about key data ahead of the Budget this year to justify a tax increase, leading to calls for him to be sacked.
According to the OECD, stagnant growth next year is “due to the ongoing impact of budget tightening on consumption and pressure from global uncertainty”.
The small improvement of 0.1 percent in 2027 is “supported by business investment and exports as financial conditions and global trade improve.”
The OECD also suggested Ms Reeves would have limited room for maneuver because “fiscal policy will remain restrictive given high government borrowing costs”.
After the Office for Budget Responsibility, the UK’s main economic watchdog, warned last week that none of Ms Reeves’s measures would deliver economic growth, the OECD warned: “Tax and spending measures should also aim to further support growth potential by complementing ongoing structural reforms, such as an overhaul of infrastructure planning.”
The OECD findings on unemployment followed criticism from Ms Reeves that increasing national insurance contributions for employers had played a role in reducing the number of vacancies from businesses.
It warned: “The labor market is cooling; the number of employees on payroll fell by around 0.4 per cent in the year to September and the number of vacancies fell by almost 14 per cent over the same period.”
However, the OECD noted: “Recent increases in payroll taxes and the minimum wage have slowed the decline in labor cost inflation. Annual wage growth in the private sector reached 4.4 percent in the three months to September, although wage payments fell faster.”
The report touched upon how Donald Trump’s tariffs are still harming the UK and made the following statement: “Survey measurements of new manufacturing export orders are weak.
“This reflects a 7 percentage point increase in the total effective tariff rate faced by domestic goods exporters in U.S. markets since the beginning of the year, despite the recent bilateral trade agreement. In contrast, trade in services has continued to grow steadily.”
Reacting to the report, Ms Reeves defended her budget’s changes to health care and child poverty after abandoning economic growth as its “No. 1 mission”.
He said: “Last week my Budget cut waiting lists, cut borrowing and debt and lowered the cost of living. Less than a week later the OECD lifted our growth and cut its inflation forecast next year.”
“The choices I make in the budget are expected to reduce inflation by 0.4 percentage points, reduce the cost of living for households and the costs of our businesses. We will deliver on our number one mission of putting more money in people’s pockets, alongside our plans to deliver growth by investing in this country’s infrastructure, attracting major private investment and pushing for bold planning reforms.”
Shadow chancellor Sir Mel Stride said: “The OECD is clear: Unemployment will rise, partly driven by the impact of Labour’s jobs tax, and inflation will remain above target for the rest of its forecasts.
“Rachel Reeves has promised growth, but because of her choices, growth is expected to weaken next year. This is the cost of policies that penalize business, businesses and investment.”
