Population decline will drag down GDP growth

The government’s new immigration plan implies that the population will decline by 0.2% in both 2025 and 2026, a huge shift from population growth of almost 3% over the past two years. That means GDP growth is likely to remain subdued in the next couple of years and raises serious questions about the outlook for residential investment. A likely contraction in the labour force presents some upside risks to wage growth further ahead but, at a time when the unemployment rate is high, we suspect the more immediate impact will be to weigh on rents and pull down CPI shelter inflation.