Stricter UK immigration policy threatens substantial government revenue losses

If the government formally incorporates immigration-revenue trade-offs into fiscal planning and adjusts tax or spending policy accordingly, gilt markets would likely stabilize around a revised but credible fiscal path, reducing near-term volatility in sterling and long-duration gilts.

Continued policy drift on immigration without explicit fiscal adjustment would leave the OBR's revenue forecasts in tension with actual migration flows, creating periodic reassessments of gilt yields and sterling as budget cycles approach and forecasts are revised.

A sharp, unplanned shortfall in immigration-linked tax revenues combined with spending commitments would force a mid-cycle fiscal tightening or gilt issuance increase, putting upward pressure on gilt yields and downward pressure on sterling as investors repriced UK sovereign risk.