Economy

WASHINGTON (Reuters) -U.S. Federal Reserve officials including Fed Chair Jerome Powell said on Thursday they are still not sure that interest rates are high enough to finish the battle with inflation, with Powell cautioning that the Fed may get little further help in taming price increases from improvements in the supply of goods, services and labor. The Fed “is committed to achieving a stance of monetary policy that is sufficiently restrictive to bring inflation down to 2% over time; We are not confident that we have achieved such a stance,” Powell said at an International Monetary Fund event briefly disrupted by climate protesters. “If it becomes appropriate to tighten policy further, we will not hesitate to do so.” His comments, taken as hawkish by markets that bid up market interest rates, were echoed by three colleagues who continued to keep the emphasis on taming inflation as the Fed’s main concern.”It would be unwise to suggest that further rate hikes are off the table,” interim St. Louis Fed President Kathleen O’Neill Paese said at an event in Indiana. “There is considerable economic uncertainty at the present time. There are reasons inflation could surprise to the upside.”Speaking at a separate event, Richmond Fed President Thomas Barkin noted that it “remains to be seen” if further tightening will be warranted, particularly with the economy growing at a 4.9% clip last quarter. That’s a pace inconsistent with further slowing of inflation, he said, even as he endorsed the central bank’s current wait-and-see approach on a further policy rate increase.The Fed at its Oct. 31-Nov. 1 meeting held interest rates steady at the current 5.25% to 5.5% range, nodding to both risks that inflation remained too high amid strong economic growth, but also to the fact that recent increases in market-based interest rates could slow the economy and make further Fed policy rate increases unnecessary.Powell said that the Fed will proceed “carefully” from here as officials “address both the risk of being misled by a few good months of data, and the risk of overtightening. We are making decisions meeting by meeting.”Still, Powell said the fight to restore price stability, with inflation at 3.4% and changing only slowly in recent months, “has a long way to go.”BATTLE’S FINAL PHASEWhile Powell’s remarks about the immediate policy outlook did not go much beyond those given after the most recent Fed meeting they did elicit a response from financial markets. Traders now see about a one-in-four chance of a further rate hike by January, up from about one-in-six earlier, and expect Fed rate cuts to wait until June. Longer-term bond yields also rose, helped also by a weaker-than-expected 30-year bond auction.Indeed, Powell used much of his speech to delve into his views about how the final phase of the inflation battle may unfold, suggesting that “disinflation” from here on may have to rely more on an economic slowdown than improvements in supply.”It is not clear how much more will be achieved by additional supply-side improvements,” Powell said. Going forward, “it may be that a greater share of the progress in reducing inflation will have to come from tight monetary policy restraining the growth of aggregate demand.””The forward-looking implication is that the so-far immaculate disinflation may get a little more painful in the future,” said JP Morgan Economist Michael Feroli. “We still believe the Fed is done hiking for this cycle, but today’s speech should serve as notice that their rhetoric must stay hawkish until they’ve seen further improvement in inflation.”Data in coming weeks, including the release next week of October’s consumer price index, will be particularly key as Fed officials weigh any further tightening ahead of their next meeting on Dec. 12-13.Giving voice to the other side of the debate at the Fed, Chicago Fed President Austan Goolsbee told the Wall Street Journal officials need to be careful of overshooting, given the impact of higher bond yields. Powell nodded to that risk in his IMF appearance, saying that Fed is “not going to ignore” a significant tightening in financial conditions and does not want to overtighten policy. Still, he said, “the biggest mistake we could make is really, to fail to get inflation under control.” More

Stay informed with free updatesSimply sign up to the More

Jerome H. Powell, the Federal Reserve chair, said officials would proceed carefully. But if more policy action is needed, he pledged to take it.Jerome H. Powell, the chair of the Federal Reserve, on Thursday expressed little urgency to make another interest rate increase imminently — but he reiterated that officials would adjust policy further if doing so proved necessary to cool the economy and fully restrain inflation.Mr. Powell and his Fed colleagues left interest rates unchanged in a range of 5.25 to 5.5 percent this month, up from near zero as recently as March 2022. The Fed has raised borrowing costs over the past year and a half to wrangle rapid inflation by slowing demand across the economy.Because inflation has faded notably from its peak in the summer of 2022, and because the Fed has already adjusted policy so much, officials are debating whether they might be done. Once they think rates are at a sufficiently elevated level, they plan to leave them there for a time, essentially putting steady pressure on the economy.Mr. Powell, speaking at a research conference in Washington hosted by the International Monetary Fund, reiterated on Thursday that policymakers wanted to make sure that rates were sufficiently restrictive. He said Fed officials were “not confident that we have achieved such a stance” yet.“We’re trying to make a judgment, at this point, about whether we need to do more,” Mr. Powell said in response to a question at the event. “We don’t want to go too far, but at the same time, we know that the biggest mistake we could make would be, really, to fail to get inflation under control.”He made clear that the Fed did not want to take a continued steady slowdown in inflation for granted. While the Fed’s preferred inflation measure has cooled to 3.4 percent from above 7 percent last year, squeezing price increases back to the central bank’s 2 percent goal could still prove to be a bumpy process. Much of the added inflation that remains is coming from stubborn service prices.“We know that ongoing progress toward our 2 percent goal is not assured: Inflation has given us a few head fakes,” Mr. Powell said. “If it becomes appropriate to tighten policy further, we will not hesitate to do so.”But the Fed does not want to raise interest rates blindly. It takes time for monetary policy changes to have their full effect on the economy, so the Fed could crimp the economy more painfully than it wants to if it raises rates quickly and without trying to calibrate the moves.While central bankers want to cool the economy to bring down inflation, they would like to avoid causing a recession in the process.“We will continue to move carefully,” Mr. Powell said. He said that would allow officials “to address both the risk of being misled by a few good months of data and the risk of over-tightening.”The risk of overdoing it is why central bankers are contemplating whether they need to make another move, or whether inflation is on a steady path back to normal.As of their September economic projections, officials thought that one final rate increase might be necessary, investors doubt that they will raise rates again in the coming months. In fact, market pricing suggests that the Fed could start cutting interest rates as soon as the middle of next year.Markets are betting there is only a sliver of a chance that the Fed will adjust policy at its final meeting of 2023, which will conclude on Dec. 13, and Mr. Powell did little to signal that a rate increase is imminent.Still, his remarks pushed back on the growing conviction among investors that the central bank is decisively finished.“We still believe the Fed is done hiking for this cycle, but today’s speech should serve as notice that their rhetoric must stay hawkish until they’ve seen further improvement in inflation,” Michael Feroli, chief U.S. economist at J.P. Morgan, wrote in a research note.Some economists have been anticipating that a recent jump in longer-term interest rates might persuade the Fed to hold off on raising borrowing costs again. While the Fed sets shorter-term interest rates, longer-term ones are based on market movements and can take time to adjust — but when they do, mortgages, business loans and other types of borrowing become more expensive.Fed officials are watching market moves, including whether they last and what is causing them, Mr. Powell acknowledged. He said officials would watch how the moves shaped up.“We’re moving carefully now, we’ve moved very fast, and rates are now restrictive,” Mr. Powell said. “It’s not something we’re trying to make a decision on right now.”He also used his speech to discuss some longer-term issues in monetary policy, including whether interest rates, which had lingered near rock-bottom levels for much of the decade preceding the pandemic, will eventually return to a much lower setting.Some economists have speculated that borrowing costs might remain permanently higher than they were in the years after the deep 2007-9 recession. But Mr. Powell said that it was too early to know, and that Fed researchers would ponder the question as part of their next long-run policy review.“We will begin our next five-year review in the latter half of 2024 and announce the results about a year later,” Mr. Powell explained.The last review concluded in 2020 and was focused on how to set policy in a low-interest rate world, a backdrop that quickly changed with the advent of rapid inflation in 2021. More

The deal, the second in two days with a major resort operator, was announced on the day before a strike deadline set by two major unions.Two unions representing hospitality workers announced on Thursday a tentative labor agreement with a second major Las Vegas hotel operator, MGM Resorts International, a day before a strike deadline set by the unions.Culinary Workers Union Local 226 and Bartenders Union Local 165 said a deal had been reached on a five-year contract covering 25,400 workers at MGM Resorts, which runs eight Las Vegas properties: the Aria, Bellagio, Excalibur, Luxor, Mandalay Bay, MGM Grand, New York-New York and Park MGM.The unions, which are affiliates of UNITE HERE, announced on Wednesday that they had struck a deal with Caesars Entertainment, another major resort operator in the city.The unions said last week that their members would go on strike if an agreement with the city’s three main resort operators was not reached by Friday. The unions are still negotiating with Wynn Resorts.The unions have been negotiating with the resorts since April. The agreement would avert a strike at MGM’s resorts, although the unions’ members still need to ratify the new contract.Ted Pappageorge, the head of Local 226, said in a statement that with the new deal, MGM workers “will be able to provide for their families and thrive in Las Vegas.” The unions said the agreement with MGM included the largest wage increases “ever negotiated in Culinary Union’s 88-year history,” a workload reduction for some members and increased safety protections, among other benefits.“We’re pleased to have reached a tentative agreement that averts a strike, gives our culinary union employees a well-earned boost to pay and benefits and reduces workloads,” Bill Hornbuckle, the chief executive of MGM Resorts, said in a statement.It’s not yet clear how big of a pay increase union members will receive, but Mr. Hornbuckle, told analysts on an earnings call Wednesday that a deal would result in “the largest pay increase in the history of our negotiations with the culinary union.” He added that the company would harness “technology and process improvements to help offset the incremental labor costs we expect.” The deal with the union includes some protections from new technologies that would affect their jobs.The deals with the resort operators were reached about a week before the Las Vegas Grand Prix, a Formula 1 race that winds through the Strip, where most of the resorts are. The event promises to be a major moneymaker for the city’s hospitality industry: Mr. Hornbuckle said his company had sold more than 10,000 tickets to the event and expected to attract $60 million in extra hotel revenue that weekend. More

Energy markets have shrugged off the fighting between Israel and Hamas so far, focusing instead on forecasts of subdued demand.Intense fighting is underway in a region that holds much of the world’s petroleum resources. Yet, after a few days of anxiety following the bloody Oct. 7 raids by Hamas militants in Israel, energy markets have been slumping. Brent crude, the international oil benchmark, is selling for about $80 a barrel, cheaper than when the fighting started.Why aren’t prices higher? A main reason, analysts say, is that the fighting, no matter how vicious, has produced little disruption to petroleum supplies, leading traders to conclude that there is no immediate threat.“While traders realize there is an increased risk, that hasn’t led to a lot of precautionary buying,” said Richard Bronze, head of geopolitics at Energy Aspects, a London-based market research firm.With respect to the Middle East, the markets are “effectively dismissing that anything could go wrong,” said Raad Alkadiri, managing director for energy and climate at Eurasia Group, a political risk firm.Mr. Alkadiri said that traders are unlikely to bid up prices unless they see “actual barrels removed” from the market.Waning Demand in FocusThe market appears to have blocked the war out, and has returned to a mood of pessimism about future demand for petroleum, dominated by economic concerns about China, the largest oil importer, and other large consumers. Saudi Arabia and other producers have been trying to support prices by reducing their oil output.Forecasters are warning that 2024 could be a difficult year in the oil markets. The U.S. Energy Information Administration predicted this week that gasoline consumption in the United States would decline next year because of more efficient vehicle engines, growing numbers of electric cars, and reduced commuting as more people work hybrid schedules.The bearish sentiment drove down prices sharply before the Israel-Hamas conflict and it appears to be weighing on the market again, despite the risks of a broader war.Robust oil production in the United States has also reassured markets, with supplies from the world’s largest producer recently setting a monthly record, at just over 13 million barrels a day. “Strong oil market fundamentals are prevailing over any fears at the moment, “ said Jim Burkhard, vice president and head of research for oil markets, energy and mobility at S&P Global Commodity Insights.Haves and Have-NotsAs the fighting continues, traders have figured out that when it comes to oil there are haves and have-nots in the Middle East. Gaza produces no oil and Israel little. For there to be a material disruption in supply, the war’s effects would need to spread to the gigantic oil fields of Saudi Arabia, Iraq or Iran.Early in the conflict, Iran’s foreign minister called for an oil embargo against Israel, stirring memories of the oil embargo of 50 years ago. But times have changed: Given concerns about the role that fossil fuels play in climate change and their dependence on oil for revenues, any such move would risk backfiring on countries that imposed such a ban. Iran would risk alienating China, the Islamic Republic’s key customer.“The risk to supply is very unlikely to come from an independent decision to curtail oil sales by Iran or OPEC,” Eurasia Group said in a recent note. “Any such move would inflict as much — if not more — damage on producers as on consumers.”The Remaining RisksA disruption is not inconceivable. Four years ago, a missile attack on a key Saudi facility — for which American officials blamed Iran — temporarily knocked out about half of the kingdom’s oil production.In an extreme case, Iran, the key backer of Hamas, could try to block the Strait of Hormuz, through which huge volumes of oil flow to the rest of the world. “I still think that there is considerable risk that this spreads,” said Helima Croft, head of commodities at RBC Capital Markets, an investment bank.Ms. Croft said seeming complacency about the war’s impact could stem in part from traders’ having lost money when prices surged above $120 a barrel after Russia’s invasion of Ukraine, but then quickly fell.“The market just has no attention span for these kinds of issues anymore,” she said.Ms. Croft, a former analyst at the Central Intelligence Agency, said the apparent success of the early days the 2003 invasion of Iraq by U.S. forces eventually led to a conflict that dragged on for years. “We could still be caught by a nasty surprise in the Middle East,” she said.The Biden administration is trying to prevent a widening of the war. Regional oil powers, including Iran, would also prefer to keep tanker traffic moving through the Persian Gulf. Any halts would crimp their own export earnings, while price spikes would risk hurting and alienating their most valued customers.“It’s likely the conflict remains contained and doesn’t spill over into the big oil producers in the region or the key shipping lanes,” said Mr. Bronze of Energy Aspects. “The risks are more from miscalculation and misjudgment,” he added. More

Unlock the Editor’s Digest for freeRoula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.The Bank of Japan still has “some distance to cover” before it can sustainably meet its 2 per cent inflation target, its governor, Kazuo Ueda, has told the Financial Times Global Boardroom. This is a vital objective. The central bank’s slow and cautious approach to normalising its ultra-easy monetary policy therefore makes a great deal of sense. What makes less sense, however — except as a matter of electoral politics — are plans by Japan’s government for a fiscal stimulus, much of it timed to arrive in the middle of next year. Fumio Kishida, the prime minister, should think again.In the latest tweak to its monetary policy, which the BoJ announced at its meeting last month, the central bank changed its 1 per cent limit on 10-year government bond yields from a strict cap into a “reference” around which it will “nimbly conduct” the buying of assets. The move gets zero marks for comprehensibility — but the strategy behind it is solid enough. Ueda is trying to keep policy as easy as he can while allowing some adjustment to market pressures, fuelled by the gap between negative interest rates in Japan and 5 per cent interest rates elsewhere, that have forced the yen below ¥150 against the dollar.Even though Japan’s headline inflation rate has been above 2 per cent for many months, there are several reasons why Ueda is correct to delay a substantive tightening of policy. First, as he notes, much of the pressure on Japanese prices is imported, with domestic wages still not rising fast enough to meet the inflation target over the long term.Second, global interest rates are likely to turn at some point, with Ueda highlighting doubts about the outlook in China and the US. There is a window in which to embed inflation in Japan, but it may not last for long. Third, while above-target inflation can be tackled by raising interest rates, Japan has little scope to cut rates if prices undershoot. It therefore makes sense to err on the side of higher inflation.By contrast, the Kishida government’s fiscal policy is harder to understand. Last week it announced a stimulus that could, in theory, run to 3 per cent of gross domestic product. Headline numbers usually overstate the real value of a Japanese stimulus.The package includes quite large tax cuts and rebates for households — although they only last for a year, so their impact on consumption is questionable — as well as some sensible corporate tax changes designed to encourage investment. Overall, economists do not expect a large effect on growth. The package has the strong flavour of an unpopular government trying to curry favour with a grumpy electorate.At many moments during the past 30 years, Japan needed fiscal stimulus to tackle slack in its economy and the risk of deflation. One purpose of such stimulus was always to get the economy into a healthier equilibrium, with positive inflation, so the business cycle could be managed by changing interest rates, and the budget deficit kept under control. It remains important to avoid a premature tightening of policy. It is perverse, however, to ease fiscal policy just as the central bank is finally moving in the other direction.Doing so risks making the Bank of Japan’s exit from easy policy, which Ueda already describes as a “serious challenge”, even harder. It also uses up scarce fiscal space that will be needed in the case of a global economic shock.Repeatedly during the past three decades, the Bank of Japan has been knocked off course by badly timed tax rises. It would be more than unfortunate if the next mistake went in the other direction. More

This article is an on-site version of our Britain after Brexit newsletter. Sign up here to get the newsletter sent straight to your inbox every weekAfternoon. It’s been a rather depressing week in Brexitland, where some days it seems as if time stands still.This week investors attending the Department for Trade’s International Trade Week were treated to the UK business secretary Kemi Badenoch telling the world that:“Contrary to some media reports and many pre-Brexit establishment voices, the data says Brexit has not had a major impact on UK-EU trade.”It was presumably intended in a positive, boosterish kind of way to signal that the UK was ‘open for business’, but the sight of a UK minister dismissing the work of multiple serious trade economists on the effects of Brexit as mere “media reports” raises questions of credibility with both international investors and UK business.From a narrow political point of view, the speech had the desired effect on domestic headlines, with both the Sun and The Express berating the Brexit “doom-mongers”, a phrase used by both in near-identical headlines.“‘Stop talking ourselves down!’ Kemi Badenoch blasts Brexit doom-mongers as exports soar” was the headline in the Express. The basis for these newspaper claims of “soaring” exports was a paper by the Institute of Economic Affairs, the free-trade think-tank. The top lines in the press release sent to journalists said that UK goods exports “rose by” 13.5 per cent to EU countries and 14.3 per cent to non-EU countries between 2019 and 2022, which “indicates no impact of Brexit on goods trade”. It didn’t take long for the likes of Jonathan Portes, professor of economics and public policy at King’s College, London to accuse the IEA and Badenoch of taking people for fools, since when you adjust for inflation you get a very different picture.Do that, and you find UK goods exports to the EU falling over the period by 7.2 per cent and non-EU exports by 9.8 per cent, what Portes calls a “significant deterioration in UK export performance”. The IEA report did include these numbers, but of course it was the unadjusted numbers headlined in the press release that made it into the Express and the Sun.More recent OECD real trade data, adds Sophie Hale at the Resolution Foundation, shows that by the middle of 2023, total UK goods imports and exports remained 11.3 and 14.7 per cent down, respectively, on pre-Brexit levels (Q1 2019) which was “by far the most negative shift in the G7”.The central argument of the IEA’s report is actually that since UK trade has fallen to both EU and non-EU destinations, then logically the contraction cannot be attributed to Brexit, it must be due to wider global factors. At first blush, that feels like something of a clincher — you would expect trade to the EU to fall more after the UK did a ‘reverse trade deal’ with the bloc — but that overlooks the fact that modern trade and supply chains are deeply intertwined.As John Springford at the Centre for European Reform pointed out, the drop in imports from the EU to the UK (while the rest of the EU’s have risen) points clearly to a Brexit impact on UK trade which is plausibly the result of the UK being slowly cut out of EU value-chains.Nicolo Tamberi, research fellow at the Centre for Inclusive Trade Policy at the University of Sussex, also suggests that the weak overall performance of UK goods exports post-TCA “might be a consequence of the large fall in imports from the EU, which translates into higher cost/less intermediate inputs hence the overall fall in UK exports.”It’s worth noting that the impact of this effect also falls “behind the border”. So while larger companies do the bulk of exporting and importing, if the amount of trade they are doing shrinks, it will impact the smaller companies that supply them. Another indirect effect of Brexit.There is also a substantial and growing body of academic work that shows the number of products and trading relations between the UK and the EU have fallen very sharply since Brexit — in simple terms, this is mostly SMEs giving up trading with the EU because it is too complicated.The IEA report argues that SMEs were given an adjustment fund to help adapt to the new trading arrangements, but trade group surveys repeatedly show this isn’t happening. This is partly because new and emerging regulatory barriers, including carbon taxes and various forms of supply chain due diligence (the so-called ‘Brexit 2.0’ effects I’ve written about), keep appearing over time.You could still argue this doesn’t matter, since big companies do most of the trading and they can absorb the bureaucracy and costs, but that overlooks the fact that some of those smaller exporting companies would have become bigger companies and now won’t. (Last week’s report on cosmetics companies like Doncaster’s Apothecary 87 is a case in point. As the boss Sam Martin told me: “My original vision for the company was more grand, more global and I’d love to get back to that, but we have to cut our cloth to the world as it is now.”)Another way to measure potential Brexit effects is to look at the UK’s “trade openness” (imports + exports as a share of GDP) and compare it to peer economies that were suffering other headwinds, like the pandemic and Ukraine energy price shock.Hale at the Resolution Foundation finds that UK trade openness was 3.6 percentage points below pre-pandemic levels (H1 2019 to H1 2023), compared to a rise in trade openness of 0.2 points across the G7, excluding the UK. That included a 0.4 percentage point rise in France, which has a similar trade profile to the UK.It was notable that in the same week Badenoch gave her speech saying “nothing to see here” the governor of the Bank of England Andrew Bailey was giving a speech in Ireland warning that Brexit had “led to a reduction in the openness of the UK economy”.Step back, and what is most concerning about the Badenoch speech is that while there’s lots of legitimate argument to be had over Brexit effects, which remain uncertain both in terms of the size and the relative impact on goods versus services, is it really credible just to wish them away?For much of the Brexit process the UK has spent too much time talking to itself. The Badenoch booster strategy is, I fear, another example of this — designed to win headlines in the Sun and the Express and burnish her Conservative leadership credentials but attracting weary derision from both investors and economists.Talking to investors, diplomats and trade bodies the refrain you hear is that the UK needs “a plan” and it needs the political capacity to implement it in the real world, staying the course over political cycles. The Badenoch speech does little to signal that the UK is really moving on, notwithstanding Rishi Sunak’s creditable efforts to stabilise relations with Brussels. His own party conference speech claiming Brexit had boosted growth in the UK was in the same vein.And as Stephen Hunsaker, the economics researcher who authors the UK in a Changing Europe’s quarterly trade tracker, observes, the danger in not really confronting the challenges of Brexit is that UK trade slides deeper into the doldrums.“Stagnation is the danger of ‘nothing to see here’,” he said, “because eventually it will become more clear the UK is being left behind in future trade deals and business strategies which will become evident when it’s too late down the road to change it.” Brexit in numbersYou are seeing a snapshot of an interactive graphic. This is most likely due to being offline or JavaScript being disabled in your browser.This week’s chart comes courtesy of a sobering piece of reporting by my Europe-facing colleagues Henry Foy and Ian Johnston analysing the EU’s own struggles to discover its competitive edge after the Covid-19 pandemic.Part of the challenge is the deluge of state subsidies that have undermined the core level playing field of the EU single market, which relies on a tough state aid regime precisely to avoid big countries distorting the market for others. And the numbers are extraordinary. According to unofficial commission figures seen by the FT they report that EU state aid expenditure rose from €102.8bn in 2015 to €334.54bn in 2021, but between March 2022 and August this year, Europe approved €733bn in state support — with Germany accounting for almost half of that figure (although not all of it will necessarily be spent).At the same time, the EU is larding its trade processes with a welter of new regulations — on supply chains, plastic packaging, carbon adjustments — that are causing the “Brexit 2.0” issues that we’ve discussed before in this newsletter.The EU’s detractors will argue that this deepens the case for Brexit — unshackling ourselves from the corpse, so to speak — but the challenge remains that the UK continues to conduct half its trade with a bloc where it no longer has a seat at the table to make the case for a more competitive approach. As it once did.Britain after Brexit is edited by Gordon Smith. Premium subscribers can sign up here to have it delivered straight to their inbox every Thursday afternoon. Or you can take out a Premium subscription here. Read earlier editions of the newsletter here.Recommended newsletters for youInside Politics — Follow what you need to know in UK politics. Sign up hereTrade Secrets — A must-read on the changing face of international trade and globalisation. Sign up here More

Unlock the Editor’s Digest for freeRoula 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.” More