Migration Advisory Committee (MAC) warned that restricting migration into Britain after Brexit is likely to lower growth in employment as well as lower output growth.
The independent advisory body was asked by the British Government last year to help redesign an immigration system after Britain leaves European Union in March 2019.
The initial findings were based on evidence received from more than 400 businesses and industry bodies and the MAC did not make any policy recommendations. The final report is due to be published in September.
The report also said many firms did not seem well prepared for "a changing and tighter labour market in which they may be competing with each other for labour more intensively than in the past; still, fewer seemed to be making provisions for change".
But the British government has bought additional time by negotiating a transition deal to retain benefits of EU membership till 2020 and sustain free movement of labour.
Concern about the long-term social and economic impact of immigration helped drive the 2016 vote to leave the EU, and the government has a long-standing aim to bring net migration into Britain below 100,000.
The government said it was committed to having "controlled and sustainable" migration and the new system would be based on evidence including that from the MAC.