Angela Merkel’s reported comments on the UK government’s attempt to curb migration from other European Union countries, should “concern investors,” warns a leading investment analyst.

The comments from Tom Elliott, International Investment Strategist at deVere Group, which has 80,000 clients and $10bn under advice and management, come as it was claimed in a German publication that the German Chancellor has warned her counterpart, David Cameron, that she would rather the UK left the EU than see the principle of free movement compromised.

Mr Elliott affirms: “Investors hate uncertainty and they would be right to be nervous at the high risk game of poker that Prime Minister David Cameron is choosing to play on immigration.”

Against this backdrop, how are investors being advised to respond?  

Tom Elliott opines: “Probably look towards short UK assets, whether equities, government bonds or property.”

He continues: “Migration into the UK, from the EU and elsewhere, has been disruptive but has also been a major contributor to overall economic growth over the last 20 years by boosting both demand and the skills level of the workforce.

“This is needed in a country with deep structural labour market problems, which hinder labour productivity gains. Limiting immigration from the EU, whether we leave the union or not, must by definition slow economic growth and investment returns.

“Almost everyone will feel tighter restrictions on immigration: skilled industries will not be able to hire and to grow, meaning a smaller tax base with which to support welfare payments.”

Tom Elliott suggests that the problem of EU immigration is “UK political theatre.”

He observes: “By promising to curb immigration from the EU, Cameron has made a promise he cannot keep unless he campaigns for withdrawal of the UK from the EU in a future referendum. This will make exit more likely.

“Cameron will not receive special dispensation for the UK from the freedom of movement rule, because there is no appetite amongst other governments to change this core principle of the EU.

“Other EU leaders are more concerned about the difficult road ahead for the euro zone economy and single currency project, with the future of the euro lurking in the two debates that Germany – egged on by the Bundesbank – is having with France and Italy over budget deficits, and with the ECB on its creeping monetary activism.

“Furthermore, to many observers, Cameron’s persistent outrage over European matters appears to be stage-managed, entirely for domestic political reasons, and his problem of his own making. After all, by offering the country a referendum on EU membership in 2017, hasn’t he given succour to the anti-European lobby in UK politics?”