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If official data can be believed, it’s time to panic about the efficiency of the UK economy. The UK’s long-standing productivity puzzle turns into a crisis, with the result becoming weaker improvements in living standards, weaker fiscal and frustration of the country’s governance.
The increase in production per hour fell after the global financial crisis, with an increase of only 0.7% per year, rather than the 2% rate before 2008. Latest data shows that labor productivity is decisively below this slight trend.
The reasons for the approximation of the original “productivity puzzle” are now fairly well understood. While improvements in efficiency have deteriorated in wider regions of the economy, the main drivers of declining growth rates are that the UK’s best sectors, best companies and best regions have lost much of its pre-2008 momentum. It was. Advanced manufacturing, professional services, finance and the London economy were no longer separated from the rest of the UK.
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The fashionable political answer to the roundabout stage of productivity distribution in the late 2010s was to deal with something completely different and try to “level up” the country. No one should be surprised that it failed.
The latest data is amazing. Productivity levels have been falling since 2023, with growth rates below trends since 2008.
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The drivers underlying the current crisis are different. The National Bureau of Statistics has discovered the “batting average” effect, where more people are currently employed in the low production sector. This reduces the overall proportion, reflecting both a growing need for care for seniors and a temporary recent surge in low-skilled mobility. The public sector has also seen a big drop in its measured productivity since Covid.
There is a general mal lazy feeling that affects most sectors of the economy. The Competitive and Market Bureau will cause this to fall in business dynamism. This is evidenced by fewer people moving jobs, fewer company start-ups and closures, and younger companies evacuating more established players in the sector.
Regardless of the promotion of a welcome to government growth, this evidence should persuade the office for budgetary responsibility to mark the future potential growth rate of the economy. The recent data is so bad that it’s dangerous to assume things will turn out as Finance Watchdog thinks. That October forecast is already confused by the latest data.
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It’s time to start this column and say, “If you believe in data,” and panic. Sadly, you can’t believe in the data, especially the productivity figures at the moment. All output, employment and working hours data have been compromised.
The ONS itself recognizes that the latest figures do not reflect the latest population forecasts, and the productivity trends become even worse when new data with high migration is incorporated. This month’s NHS released health department efficiency data that is much more encouraging than official figures as they move in other directions. Time data for all measures are from unreliable labor force surveys, and their alternatives are based entirely on different concepts. The Bank of England has discovered the latest trends that cannot be explained.
Due to this uncertainty, OBR’s conversion of potential production forecasts in the update scheduled for March 26th will be surged, requiring significant government spending cuts or tax increases . However, if the data becomes clearer and shows the same trend, you will find that downgraded your productivity outlook is in mind.
It is likely that it is still difficult news for the country. Without increasing productivity much faster, households, businesses and spending ministers will be disappointed with the UK’s economic performance.
chris.giles@ft.com
