Articles from September 2015



UK productivity lags behind rest of G7

The UK was much less productive than the rest of the G7 in 2014- lagging by the most since 1991, official figures have shown.

The UK was much less productive than the rest of the G7 in 2014- lagging by the most since 1991, official figures have shown.The Office for National Statistics (ONS) said output per hour was 20 percentage points below the G7 average.

The UK was behind the US, Germany and France by a large margin and was slightly worse than Italy and Canada.

Productivity is seen as key to helping increase living standards in the UK by many experts.

“These figures show UK productivity continues to lag behind other developed economies,” ONS chief economist Joe Grice said.

“Since the economic downturn, productivity growth has slowed in most developed economies, but by more in the UK than the average.”

The Chancellor, George Osborne, pledged in July to take steps to encourage more long-term investment in infrastructure and by businesses to boost productivity.

Institute of Directors chief economist James Sproule said that UK firms should focus on “agility” rather than productivity.

“The economy of the future looks set to be dominated not by big companies, but by fast, agile, quick-moving and reactive ones,” he said.

“The firms that can respond to consumer demands most effectively and bring new products and services to market will reap the rewards.”

Productivity isn’t everything, but in the long run it’s almost everything – as Nobel Prize winner Paul Krugman noted 25 years ago in his book The Age of Diminished Expectations.

Unless you improve the amount each worker produces, you can’t expect living standards to rise.

It’s a harsh verdict on British economic performance that since 1991 when the ONS started making international comparisons, the gap between our productivity and the rest of the world’s advanced economies widened to a chasm.

Sure we have had economic growth. But the fact that we’re still 18% less productive than we would have been on pre-crisis trends gives you some idea why that growth hasn’t always flowed through to higher wages.

If each worker produced more, employers could afford to pay higher wages. That – of course – isn’t to do with workers working “harder”.

Much more decisive in improving how much each produces is investment – in plant and machinery, in skills and in public infrastructure such as roads.

The ONS international comparisons relate to 2014, so they’re a bit behind the times.

The latest official data on UK productivity, released in July, recorded a sharp pick-up in productivity at the start of the year.

Investment has also picked up. But if we’re going to catch up with the rest of the G7, we’ll have to sustain that for years.