World Economy

UK Productivity Gap Among G7 Largest Since 1992

UK Productivity Gap Among G7 Largest Since 1992UK Productivity Gap Among G7 Largest Since 1992

Britain’s productivity gap with other G7 nations has widened to its largest since 1992, according to official figures.

Data from the Office for National Statistics (ONS) showed that the output per hour from UK workers in 2013 fell to 17% percentage points below the average of other leading industrialized nations, Reuters reported.

The data will raise further questions about how much of the UK’s productivity loss during the downturn is permanent and how much might be clawed back as the recovery continues. That in turn will have implications for price pressures in the economy and how soon the Bank of England may raise interest rates to keep inflation in check, economists say.

“Latest data on UK productivity are not hugely encouraging,” said Howard Archer, economist at IHS Global Insight.

“If productivity fails to pick up appreciably over the coming quarters, it indicates that the economy has less potential to grow without generating inflationary pressures and that interest rates will likely need to rise at a faster rate than currently envisaged.

“The more productivity improves, the greater the scope of the Bank of England to keep monetary policy very accommodative. The Bank of England is currently assuming that productivity will pick up only gradually.”

The ONS figures showed a continuing divergence between the UK and other advanced economies on productivity growth. In 2013 UK output per hour was roughly unchanged from its level in the pre-downturn year of 2007, but 15-16 percentage points below where it would have been if the UK’s strong productivity growth prior to the downturn had continued. The productivity gap on the same basis for the rest of the G7 is around six percentage points, the ONS added.

Measured in output per hour terms, productivity also fell in 2013, contrasting with an increase of 1.0% across the rest of the G7, the ONS said.

The Bank has described the slow recovery in output per worker and per hour as a “productivity puzzle” and suggested it is down to a combination of factors.

Earlier on Friday, the Bank’s chief economist, Andy Haldane, highlighted weak productivity as one of three “reasons to be fearful on the economy”.

He said: “The level of productivity is no higher than it was six years ago. This is the so-called ‘productivity puzzle’. Productivity has not flat-lined for that long in any period since the 1880s, other than following demobilization after the world wars,” he said.