UK migration a reminder of unusual labour market dynamics

Late last month, the UK’s Office for National Statistics (ONS) published updated migration numbers for the year to June 2025. As we argued here, immigration will be an important variable to monitor when it comes to assessing the health of labour markets. Migration has increased dramatically around the world since 2021, driven partly by the post-Covid reopening and partly by the record number of people being displaced from their countries of origin due to geopolitical conflicts. Migration data is reported with a significant lag and some data is only produced on an annual basis; it is more difficult to form a timely view of trends in migration than it is for job creation, for example, for which data is readily available through indicators such as non-farm payrolls in the US or the PAYE data in the UK.

The ONS numbers showed a continuation of the steep decline in net migration in the UK. Exhibit 1 shows net migration figures for the last 12 months split by British, European Union (EU) and non-EU nationals back to 2012. In the year to June 2025, net migration totalled 204,000 people. This is lower than in the mid-2010s, though the number of foreigners continues to increase, just at a slower pace. Broadly speaking, EU migration has been replaced by non-EU migration, while at the same time the number of British nationals migrating to other countries has been marginally higher in 2024 and 2025 than in previous years. The data also shows that net migration has declined from its peak due to both a decline in total immigration from nearly 1.5m to around 900,000, and an increase in total emigration from just under 500,000 to around 700,000. Looking at the listed reasons for non-EU nationals to come to the UK, there has been a slight increase from recent lows in study-related immigration and asylum seekers, while work-related family, humanitarian and “other” have shown declines.

Anecdotal evidence from other countries such as the US points to a similar trend, though the official US data is published annually. Last week’s initial jobless claims number was significantly below expectations at 191,000, similar to the less widely followed Challenger’s Job Cuts survey, which also came in better than expected. Data in the US has been affected by the government shutdown and there are reasons to believe that seasonal adjustments this year to the initial jobless claims numbers were unusually high and might be reversed in coming reports. US job creation data meanwhile shows signs of cooling off, but no disastrous trends that would make us think unemployment rates will increase dramatically in short order (though it is worth stating that labour market trends can turn quickly).

While labour markets are affected by multiple factors, we do think migration patterns are having a bigger impact than usual in explaining current trends. Usually, though not always, when job creation drops very low, a recession follows at some stage in the not-too-distant future. This time around it might be the case that low job creation does not coincide with a dramatic increase in unemployment, thanks to the effect of lower net migration on the labour supply. If these trends persist, it would lend support to the idea that the Federal Reserve can lower rates at a slow pace with risk assets continuing to perform reasonably well, which is broadly what we see the market pricing in at present.