The release of Germany’s latest census figures has sent a chill through European capitals, revealing a population decline that is accelerating faster than official projections had anticipated. For the United Kingdom, the news is a stark reminder that demographic decline is not a problem confined to the continent’s ageing industrial heartlands. With the Office for National Statistics now forecasting that the UK population could peak in the 2070s before beginning a slow descent, the question of how to manage a shrinking workforce is moving from the academic to the urgent.
Germany’s population fell by roughly 200,000 in 2023, a drop driven by a birth rate of just 1.5 children per woman and an ageing baby-boomer cohort moving into retirement. The decline is sharpest in the former East German states, where decades of outward migration to the west have left behind towns with more funeral directors than primary schools. The old divides between East and West are being laid bare again, not by politics, but by the cold calculus of demographics.
For the UK, the German experience offers a cautionary tale. While Britain’s population is still growing, driven largely by net migration, the underlying trends are similar. Birth rates in England and Wales have fallen to 1.49 children per woman, a figure that would make even a German demographer wince. The difference is that the UK has relied on immigration to prop up its numbers, a strategy that has become politically toxic. The government’s recent crackdown on legal migration, including higher salary thresholds and restrictions on student dependants, is already showing results: net migration is forecast to fall from a peak of over 600,000 to around 300,000 by 2025.
But here is the bottom line: cutting migration without boosting birth rates is a recipe for fiscal disaster. The UK’s dependency ratio, the number of retirees relative to workers, is set to rise sharply over the next decade. Every percentage point increase in that ratio adds billions to the public sector borrowing requirement. The gilt market is watching. At the last bond auction, yields on 30-year gilts ticked up by five basis points on the day the migration figures were announced. The market does not care about political nuance; it cares about the trajectory of tax receipts and spending.
The government’s demographic strategy appears to be a muddled mix of hoping for the best and tinkering around the edges. There is talk of increasing childcare subsidies and extending free hours for working parents, but these measures are unlikely to move the needle much. The cost of raising a child in London or the South East is now so high that many couples are simply opting out. The housing market, with its extortionate prices and lack of affordable family homes, is a powerful contraceptive.
What the UK needs, but is unlikely to get, is a coherent policy that addresses the root causes of low fertility: housing affordability, high childcare costs and a labour market that is hostile to part-time work. Instead, we get soundbites about family values and a tax system that penalises dual-earner households. The French model, with its generous family allowances and state-funded crèches, has kept the birth rate above 1.8, but that requires a level of state intervention that the current government is ideologically opposed to.
The capital flight risk is also worth noting. If the UK becomes a nation of retirees with a shrinking tax base, international investors will start to question the sustainability of its debt. The pound has already weakened against the dollar on the back of concerns about the economy’s long-term growth potential. A demographic crisis that is not addressed will eventually show up in the currency markets.
So as Germany’s population numbers flash red, the UK should be taking notes. The cost of doing nothing is not zero. It will be measured in higher taxes, lower public services and a bond market that demands a premium for lending to a country that is slowly running out of people. The bottom line is simple: demographics are destiny, and the UK is sleepwalking into its own version of the German dilemma. The markets are watching, and they are not patient.
