UK productivity gap widens

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Last week, my colleague George blogged about the Inflation Report, and – among other things – he noted that the Bank of England expected productivity growth to underpin growth in the medium term, but they said that this was one area where there is considerable uncertainty.

 

 

Data released by the ONS today confirms just how important making progress on productivity is for the long-term health of the UK. The UK has long had lower productivity than the G7 average, but since the recession the productivity gap between us and our competitors has widened. Today’s data showed that output per hour in the UK was 17 percentage points below the average for the rest of the G7 in 2013, marking the widest productivity gap since 1992.

 

While we’re not the only country that has seen weak productivity in the past few years, the picture is pronounced in the UK. It is the flipside of strong employment growth at a time of slow economic growth. Indeed, as an Economist article said this week after the labour market statistics were released: “Britain is working like never before… employment in Britain, both in absolute terms and as a share of the adult population, has never been higher.” This means that the UK’s poor productivity story is not all bad news.

In addition, not every sector of the economy has seen productivity fall. In the manufacturing sector productivity is now 5.9% above its pre-recession peak.

 

The issue now, though, is building on the strong labour market with the kind of productivity gains that will support long-term growth and create good jobs. Manufacturing has a key role to play in this, so it is an issue we will be blogging on more in future.

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