Productivity debate needs to look at sectors

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The productivity of the UK economy continued to lag key global counterparts last year, according to a report by the Office of National Statistics out today.

The UK’s productivity level - as measured by output per hour - remained below the average for the rest of the Group of Seven major economies. By country, the largest shortfall was against the US, followed by France, Italy, Germany and Canada. The only G7 member that the UK outperformed was Japan.

Also, the gap between the productivity of the UK and the rest of the G7 widened from 2013 to its largest in more than 20 years. In particular, the UK lost ground against the US, France, Germany and Canada.

Today’s report is likely to reignite the debate about UK’s productivity performance going into the autumn, particularly at the upcoming annual conferences of the major political parties. There’s been a lack of consensus thus far among policymakers and economists about what’s behind UK’s poor performance.

One way forward would be to look at productivity by sector rather than for the UK economy as a whole. A separate official report has consistently shown productivity growth in manufacturing outperforming the average for the whole UK economy. Key drivers are that manufacturing is relatively investment - and export - intensive. The link between high investment and export intensity with productivity growth in manufacturing implies that the lack of such in non-manufacturing sectors is dragging on the UK’s productivity performance.

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