Greg Wright
Deputy Business Editor
BRITAIN is riding the crest of a new immigration wave which is keeping interest rates down and plugging skills gaps in key industries, one of Britain's most influential economists claimed today.
Professor Peter Spencer, of York University, argues
that the influx of labour from former communist states is helping our economy enjoy a "surprisingly robust" growth rate.
He was speaking as the Ernst & Young ITEM Club's spring forecast delivered an upbeat assessment of Britain's prospects.
Prof Spencer, chief economic adviser to the ITEM Club, said: "The steady flow from the most recent EU accession countries to the UK has proved remarkably positive for the economy, keeping interest rates a half a per cent lower than they would otherwise have been.
"From Poland to Slovenia these individuals have plugged gaps in a variety of industries, from agriculture to hospitality and catering with nearly 300,000 immigrants taking new jobs in the UK in the last three years.
"Unlike previous occasions that have been confined to major urban centres, this influx has benefited many regions across the UK including the North East of England.
"As a direct result the UK workforce has become younger, more flexible and economical, easing the pensions burden and keeping interest rates lower than many commentators could have predicted. Even with a modest rise in unemployment numbers we are looking at a very favourable cost-benefit ratio."
This unexpected consequence of the UK being one of only three EU countries to sign up to freedom of movement of labour in 2004 is helping to drive economic growth, Prof Spencer claimed.
ITEM expects GDP growth to pick up to 2.6 per cent in 2007 and three per cent in 2008, even if interest rates stay at 4.5 per cent, which ITEM predicts they could do until the end of 2006.
"Interest rates have stabilised at a historically low level and that has boosted consumer confidence and house prices," said Prof Spencer.
"Although the buoyancy of the housing market has made the MPC reluctant to cut interest rates to stimulate demand, the rise in property and equity prices will support consumer spending."
A renewal in consumer confidence might suggest that the UK economy continues to rely on consumer spending to underpin growth. However, the economy is gradually rebalancing and exports started to outpace imports in 2005 for the first time in a decade.
According to Prof Spencer recent export figures have been very encouraging.
"The recent spurt is due to an increase in exports to EU countries, which were up eight per cent on the previous three months," he added. "And our figures suggest this will continue to rise, particularly if there is a fall in the pound, which would stimulate the economy further."