Migrants go home

This title is not a BBC correspondent adopting a slogan the British National Party might use. It is a statement of fact.

Migrants go home, as well as arrive in our country, with consequences for the economy.

And at this conjuncture where many things we’ve been used to for the last decade are now moving into reverse (most notably house prices), it’s worth asking whether inward migration from central Europe is about to turn as well.

The starkest reason to think it might is that the Polish zloty has risen against the pound by 20% in the last year.

The earnings you can make here don’t look nearly as impressive to your friends and family back home anymore.

In addition, wages in Poland are rising fast: 7% in 2007 (with inflation at 4%).

So overall, UK wages relative to Polish wages measured in Zloty, have fallen by a quarter.

That’s a pretty big change in 12 months.

Polish adverts in a west London shop windowA second possible factor that will begin to bite, is that the UK construction boom has probably peaked. The latest data is inconclusive, but new construction orders in the second half of 2007 were down on the first half.

Anecdotally, it is demand in construction that has fuelled a good deal of the central European migration.

Reliable and up-to-date statistics on inward migration are hard to come by. The data we have on accession country workers registering here suggests the inflow peaked in the second half of 2006; but this gives us no bearing on the outflow at all.

The Times reported earlier this month that the Polish embassy had noted that a “tipping point” had been reached, with more Poles returning. But so far, the evidence is mainly anecdotal.

If it is hard to know whether the exodus is underway, it is even harder to assess the consequences.

The City consultancy, Capital Economics concludes that “potential GDP growth is likely to slow gradually from the recent rates of 3% or even higher, to more like 2.7%”.

That is undoubtedly possible. But it is worth thinking about the effects in more detail.

And surely the labour market is where to look. If the economy slows, outward migration might soften the impact. As the demand for labour goes down, instead of unemployment going up, the supply of labour might adjust.

In that sense, one could view migration as a buffer that has softened the inflationary wage pressure of a boom, and which can now soften the labour market effect of a slowdown.

It would almost be as though UK plc had chosen to hire temps for a few years, to see it through a rather busy period.

The outflow of workers might have less benign consequences too.

If migrants have held wage inflation down, an absence of migrants might drive it up, just at a time when there is a threat of inflationary expectations rising.

And away from the labour market, think about house prices! At a time when they are falling, a reduction in migrant numbers might intensify the difficulties faced by buy-to-let investors, and the market as a whole.

This is still in the realm of speculation.

In reality, it’s far too early to call an end to the accession migration boom. And it is undoubtedly the case that many of the recent wave of migrants will settle in the UK permanently.

But one can reasonably hypothesise that if migration reverses, the things that we have associated with migration over the last decade, will do so as well.

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