Yesterday the FT reported that Geoff Dicks – one of the founding members of the Office for Budget Responsibility – had raised concerns about the UK's longer-term potential growth rate. His main worry was that productivity growth would prove disappointing. These concerns have been fuelled by the contraction of the highly productive financial sector.
It's a good thing, then, that manufacturing is proving to be the driving force behind the UK's recovery. Here's what has happened with manufacturing productivity in the last few years:
Figure 1: output per hour worked, index (2005=100)
Even taking the recession into account, growth in productivity in manufacturing has far outstripped the economy as a whole.
As Mervyn King said in the inflation report press conference on Wednesday:
An increase in “the share of manufacturing versus services would actually boost the growth rate of productivity”