Net zero migration to the UK could shrink the economy and result in taxes rising to plug a funding shortfall, an influential economic think tank has warned.

The National Institute of Economic and Social Research (Niesr) said such a scenario would “put pressure on the public finances” in its latest economic outlook report.

Net migration figures show the difference between the number of people moving long-term to the country and the number of people leaving.

It would be net zero if the number of people leaving was equal to those arriving.

The latest official figures showed that net migration dropped to 204,000 in the year to June, down 69% year-on-year, and raising the possibility of Britain reaching net zero before the end of the decade, according to some forecasters.

Niesr, a research institute which is independent of party-political interests, said net zero migration would slow down employment growth and lead to a smaller proportion of working-age people, therefore resulting in lower tax revenues.

This would leave the government needing to raise taxes to plug a growing funding gap in the long tun.

Reduced tax revenues could also be met through higher borrowing, which would increase the budget deficit by around 0.8% of gross domestic product (GDP), equivalent to around £37 billion in today’s prices, by 2040, according to the analysis.

But if net migration stayed positive, a larger working-age population would broaden the tax base and help stabilise the debt to GDP ratio, Niesr said.

Stephen Millard, Niesr’s deputy director for macroeconomics, said: “Our analysis clearly shows that net zero migration would put pressure on the public finances and worsen the public debt outlook.

“Unlike Japan, the United Kingdom lacks the institutional and financial conditions to support a substantially higher debt ratio.

“We therefore recommend the Government makes a concerted effort to get public debt down, so it has room to respond to a sharp fall in migration or any other negative shock happening to the UK economy.”

Elsewhere in the latest report, Niesr lowered its outlook for UK economic growth in 2025.

It now expects GDP to be 1.4% for the year, down from the 1.5% it forecast in November.

The think tank predicts that the economy will slow to 1.3% in 2027 and 1.1% in 2028 as taxes rise and government spending growth falls.

It is also forecasting the rate of unemployment to rise to a peak of 5.5% in the second half of 2026, before gradually declining.

Meanwhile, Niesr said it was forecasting two cuts to interest rates this year, bringing them down to 3.25% by the end of 2026 as inflation falls.