Government likely to miss productivity target, warns Nickell

The Government is unlikely to achieve an improvement in productivity – one of its key targets – in the near future, a member of the Bank of England's interest rate body warned today.

Stephen Nickell, an academic expert on labour markets and a member of the Monetary Policy Committee, said the UK's productivity performance since Labour won power in 1997 had been only "modest". He said US manufacturing productivity had outstripped the UK's by 24 per cent between 1995 and 1999 and by 13 per cent for services, mainly driven by technological improvements.

"It would be unrealistic to expect any dramatic overall improvements in the near future," Professor Nickell said in the latest issue of the Oxford Review of Economic Policy.

He said the causes for the underperformance were widespread. Competitive pressures were greater in the US while management skills were undervalued compared with skills in finance, accountancy and consultancy. But he also highlighted weakness in education and transport, areas that fall within Government policy. He said post-school vocational education was "weak" and led to a "noticeable" shortfall in technician skills. "Finally, it is hard to imagine that the increasingly congested transport infrastructure has not had some negative impact on recent UK productivity performance," he said.

The latest official figures show productivity growth has collapsed to its worst level for more than a decade in the first quarter of the year.

On an annual basis, productivity is growing at just 0.4 per cent, the weakest growth rate since the start of the last recession in the autumn of 1990.

Professor Nickell praised the Government for strengthening the powers of the competition authorities and the introduction of Budget subsidies for R&D spending.