Brexit Was Expected to Slash Immigration. Instead It Hit a Record.

LONDON—When the U.K. voted to leave the European Union in 2016, many backers of Brexit hoped the move would cut immigration by ending the right of EU residents to move here freely, a growing trend that some Britons felt was taking jobs away from locals.

Instead, immigration has risen to a record high, as growing numbers of migrants from non-European countries have outstripped a sharp decline in those from the EU. Though the ruling Conservative Party has repeatedly pledged to cut migrant numbers post-Brexit, it has instead let in more in a bid to boost stagnant economic growth.

Data released on Thursday by the Office for National Statistics showed that net migration during 2022 rose by 606,000, the largest increase on record. The figures don’t include migrants who arrived illegally on boats across the English Channel, the number of whom surged 60% last year to a record of about 45,000.

“Numbers are too high, it’s as simple as that, and I want to bring them down,” Prime Minister Rishi Sunak said Thursday.

The U.K. experience illustrates that even if industrialised nations want to curb migration, and take drastic steps to do so, they can come under pressure to allow it to avoid economic damage from labor shortages. In the U.K., the labor force is now smaller than it was pre pandemic, and some industries have complained they can’t find enough workers.

It also underscores the political headache this trade-off presents. Thursday’s immigration numbers elicited criticism among some Conservative Party lawmakers, who said voters wanted this influx brought down. Sunak’s government announced new restrictions this week on how many family members visa-holding students could bring to the country. Polls show that Britons have mixed views on whether migrants are a boon or not, but they put a lot of weight on whether the government is seen to be controlling the flow of people into Britain.

Contributing to the rise was the granting of humanitarian visas to some 300,000 people from Ukraine following the Russian invasion and from Hong Kong amid growing political repression in the former British colony. But it was also fuelled by a sharp rise in visas for students and workers from non-EU countries. About 136,000 visas were granted to students’ families in 2022, an eightfold increase from 2019.

Most economists agreed that Brexit would liberalise trade with the rest of the world but raise trade barriers with the EU, Britain’s largest trade partner, and that the net economic effect would be negative. Most economists also expected that greater migration from the rest of the world wouldn’t be enough to compensate for the decline in European migrants, another net negative, said Jonathan Portes, an economist at King’s College London who tracks immigration.

“We were right about the first part and wrong about the second,” he said. “We were right about the basic economics, but a policy that what we thought would be a modest liberalisation [of migration with the rest of the world] has turned out to be de facto quite a significant liberalisation” he said.

Whether the increase in numbers is part of a longer-term trend is still too early to tell, said Madeleine Sumption, the director of the Migration Observatory at the University of Oxford. Many of the students who have arrived in the U.K. will eventually leave and there will likely be less migration from Ukraine and Hong Kong in coming years. That could push down the numbers toward the longer-term average of about 200,000 to 250,000 a year.

Before Brexit, any EU national had the right to settle and work in the U.K. During the referendum, the “Leave” campaign said the U.K. should have more control over who entered the country. After voting to quit the EU, the U.K. government in 2021 introduced a new immigration system that only allowed in people who met certain criteria—such as being paid 26,200 pounds a year, equivalent to $32,400, or having certain levels of qualifications. This system was aimed at avoiding a glut of low-paid workers into the U.K., which had fueled the backlash against immigration, while encouraging companies to invest more in their workforces and increase pay.

In 2022, total long-term immigration, measured as anyone who stays for longer than a year, was estimated at around 1.2 million. Of that total, 925,000 were from non-EU nations.

Even now, as the government has allowed more visas for higher-skilled jobs from doctors to bankers, it has tried to resist letting in lower-skilled workers.

“What they’re not willing to do, by and large, is open up to low-wage jobs, which previously had been done by EU workers,” said Brian Bell, chair of the U.K.’s Migration Advisory Committee, which advises the government. It also meant that EU workers no longer got preferential access to the U.K., vastly increasing the influx from countries such as India.

This new system, however, was implemented just as a worker shortage and high inflation started to take hold during the pandemic. The U.K. is the only major Western economy whose workforce is still smaller than it was pre pandemic, due to a combination of long-term illness, lower immigration from Europe and people taking early retirement. The Bank of England said those shortages have stoked inflation as companies have been forced to increase wages to attract workers, while other companies simply can’t grow because they can’t find enough workers.

What is clear is that illegal migration has an impact on public opinion. The U.K. government has focused on stopping illegal migration, largely in the form of small-boat crossings from France. Sunak has repeatedly pledged to clamp down on this and has signed a deal with France to help bust smuggling rings. The government is also threatening to deport migrants who arrive illegally to the African country of Rwanda. This policy has so far been blocked by the courts.

A sharp technology sell-off has exposed a new anxiety on global markets: whether the enormous borrowing behind the artificial-intelligence infrastructure boom can generate sufficient returns as interest rates rise and Chinese competition intensifies.

The artificial-intelligence investment boom has powered technology shares, semiconductor manufacturers and data-centre operators to extraordinary heights. Last week, investors were given a reminder that much of this expansion is being built with borrowed money.

The technology-heavy Nasdaq Composite fell 4.5 per cent over the week ended October 16, its weakest performance since late June. Semiconductor shares suffered an even deeper correction, with the Philadelphia Semiconductor Index losing about 11.4 per cent.

The selling spread quickly through global markets. Micron Technology fell 14.6 per cent over the week, while South Korea’s Samsung Electronics and SK Hynix dropped approximately 18 per cent and 24 per cent respectively.

This was more than a routine bout of profit-taking. Investors were reassessing three interconnected risks: higher interest rates, the rapidly expanding debt burden attached to AI infrastructure and the prospect of stronger competition from Chinese memory-chip manufacturers.

The debt behind the AI build-out

Artificial intelligence requires a physical infrastructure network of enormous scale. Data centres must be built, advanced processors purchased, power supplies secured and cooling systems installed before customers begin generating meaningful revenue from them.

Technology companies are increasingly supplementing their own cash with corporate bonds, syndicated loans, equipment leases, private credit and project-level financing.

JPMorgan describes the emerging funding model as a combination of conventional corporate borrowing and project finance tied to individual data-centre assets. In Australia, the Reserve Bank estimates that syndicated loans accounted for approximately three-quarters of data-centre financing during 2025 and 2026 to date.

The numbers are becoming large enough to affect broader credit markets. The Federal Reserve Bank of Dallas has cited Wall Street estimates suggesting AI-related investment-grade bond issuance could approach US$300 billion in 2026 alone.

That borrowing is not automatically problematic. Debt can be an efficient way to finance long-lived infrastructure when future revenue is sufficiently predictable. The concern is that AI technology, customer demand and computing economics are changing much faster than the repayment schedules attached to the assets.

A data centre financed today may carry debt for years. Investors must therefore make assumptions about future utilisation rates, electricity prices, chip performance, customer concentration and the amount businesses will ultimately pay for AI computing.

When interest rates rise, those assumptions become less forgiving.

Inflation changes the calculation

September’s US inflation data intensified the pressure. Consumer prices increased 3.7 per cent over the year, ahead of market expectations and up from 3.4 per cent in August.

The hotter reading reduced confidence that interest rates would fall quickly and pushed bond yields higher. That matters particularly for companies whose valuations depend on profits expected well into the future, as well as highly leveraged infrastructure operators that may need to refinance.

CoreWeave has emerged as a closely watched test case. The specialist cloud-computing company has accumulated substantial debt and lease obligations to build AI capacity, while relying on a concentrated group of large technology customers.

Its shares fell sharply during the sell-off, while the cost of insuring its debt against default climbed. CoreWeave has argued that its contracted backlog more than covers its obligations and that financial markets do not always understand its business model. Nevertheless, its securities have become a proxy for investor confidence in debt-funded AI infrastructure.

Oracle, another major investor in AI computing capacity, fell 8.8 per cent in Friday trading, while CoreWeave dropped 15.5 per cent.

The question is shifting from how much AI infrastructure can be built to how profitably it can be operated.

China adds another source of pressure

Interest rates were not the only catalyst. Reports of advances by Chinese memory-chip producer ChangXin Memory Technologies raised concerns that lower-cost Chinese products could increase competition across the global semiconductor industry.

Memory chips are essential to AI systems, but the industry is historically cyclical. Periods of tight supply and high pricing can encourage rapid investment, eventually producing oversupply and falling margins.

The prospect of a well-funded Chinese competitor expanding its technological capabilities unsettled investors in Samsung, SK Hynix and Micron. It also demonstrated that AI-related demand does not insulate chipmakers from conventional competitive pressures.

That combination—slower rate cuts, more expensive financing and potentially cheaper supply—challenged the assumption that every company exposed to AI would enjoy continually expanding margins.

A reset rather than the end of the boom

The sell-off does not establish that the AI boom is ending. Demand for computing power remains strong, the largest technology companies continue to generate formidable cash flows and many infrastructure projects are backed by long-term customer contracts.

What has changed is the market’s willingness to overlook the price and financing structure of that growth.

The most resilient companies are likely to be those able to fund investment from operating cash flow, secure long-duration customers and demonstrate that new capacity will earn returns comfortably above its financing costs.

More speculative operators may face greater scrutiny, particularly where debt is expensive, customers are concentrated or expected revenue depends on demand that has not yet materialised.

For Australian investors, the lesson extends beyond US technology shares. Local data-centre operators, infrastructure funds, electricity suppliers and property groups are increasingly exposed to the same investment cycle.

Artificial intelligence may remain one of the defining growth themes of the decade. But last week’s correction showed that enthusiasm for the technology does not eliminate financial discipline.

The next stage of the AI boom will be judged not only by computing power, model performance or demand for chips, but by something more traditional: whether the assets being financed can generate enough cash to repay the money borrowed to build them.

Fact box

Nasdaq Composite: Down 4.5 per cent for the week ended October 16, 2026

Philadelphia Semiconductor Index: Down approximately 11.4 per cent

Micron Technology: Down approximately 14.6 per cent

Samsung Electronics: Down approximately 18 per cent

SK Hynix: Down approximately 24 per cent

US September inflation: 3.7 per cent annually

Estimated 2026 AI-related investment-grade issuance: Approximately US$300 billion