Unlock the Editor’s Digest for free
Roula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.
UK productivity has barely grown since the financial crisis, according to new official figures, underscoring the challenge facing chancellor Jeremy Hunt as he attempts to use the Autumn Statement to lift growth and investment.
Total factor productivity — a measure of how efficiently resources are used in the economy — was last year only 1.7 per cent above the level recorded in 2007, when the country was heading into the credit crunch. It was also just a fraction of the pace recorded in the 16 years up to 2007, when productivity increased 27 per cent, according to the figures published on Thursday by the Office for National Statistics.
The numbers go to the heart of the UK’s economic challenges, given productivity is the key driver of rising living standards over the longer term. Hunt said last month that his Autumn Statement on November 22 would lay out a plan for escaping the low-growth trap, saying it was about “supply side reforms”.
The ONS reported that productivity fell by an annual rate of 0.1 per cent in 2022, following a 0.3 per cent fall in 2021.
The data revealed big differences between sectors, with total factor productivity in information and communication more than doubling since 2007, reflecting technological advancement in the sector.
Manufacturing productivity was also up 11 per cent compared with 2007, while most of the other sectors — including financial services, hospitality, retail, professional services and construction — registered a contraction.
Many advanced economies have experienced a productivity slowdown since the financial crisis, but the trend has been particularly pronounced in the UK. Separate data by the OECD show that between 2007 and 2022 labour productivity grew less in the UK than in the US and was below the OECD average.
With limited funds at his disposal, the chancellor is seeking to drive up business investment and improve the country’s potential growth via labour market reforms, such as changing planning rules and lowering barriers to infrastructure.
In March, for example, he introduced a £10bn-a-year tax break that will last three years, permitting companies to “fully expense” investment. Business groups want him to extend the measure.
In the third quarter of 2022, business investment was unchanged from the level it reached in the same period in 2016, but it has now risen to 6 per cent above that figure — in part boosted by spending on aircraft in the three months to June.
Paul Dales, UK economist at Capital Economics, said any attempt to improve the UK’s performance would need to address three key areas: improving the labour supply, lifting the investment rate and reinvigorating productivity growth.
This would entail “a deep and wide-ranging reform effort that takes in everything from pensions to planning and taxation to public services”, he added.
The ONS’s total factor productivity numbers are experimental, which means they are subject to revisions to a greater extent than other economic data. There is further uncertainty surrounding recent readings because of the difficulty of measuring output during the pandemic, as well as lower response rates to labour market surveys.
Bart van Ark, the head of the Productivity Institute, a UK research organisation, said the trend in productivity was “alarming”.
“It ultimately implies we are not making any progress on translating technological change and innovation into better results for the economy,” he said. “It really calls for a national strategy to improve productivity across the British economy.”
A Treasury spokesperson said: “Increasing investment is one of the best ways we can raise productivity, which is why this month’s the Autumn Statement will set out plans to unlock investment, get people back into work and reform our public sector so that we can boost supply and deliver growth.”
Source: Economy - ft.com
