UK productivity growth still well below pre-financial crisis levels

British workers are far less efficient than their French and German counterparts and the problem isn't getting any better

Manufacturing has experienced a particularly marked decline in productivity growth (Reuters)

UK productivity growth remained well below its pre-financial crisis levels in the three months following June’s Brexit vote, new official figures show. The amount each UK worker produces is falling further behind other advanced economies and the country has “a lot of catching up to do”, economists said

Productivity growth is crucial to raising living standards and has been particularly weak since the 2008-9 recession.

The figure rose by an annualised rate of 0.4 per cent in the three months to September 2016 – far below its average of 2.1 per cent for the decade before 2008. The malaise is particularly acute in manufacturing which had been growing at 4.3 per cent a year, but is now at just 0.8 per cent.

The Office for National Statistics said British workers are producing 15.5 per cent less than they would have been if productivity growth had returned to its pre-crisis trend.

Andy Haldane, the Bank of England’s chief economist, said on Thursday that more than three quarters of firms are not becoming any more productive at all.

Raising productivity is vital as the UK enters an uncertain economic future amid Brexit negotiations, according to Howard Archer, chief UK and European economist at IHS Global Insight. The UK lags behind most other advanced economies on this measure and has “a lot of catching up to do”, he said.

“Part of the UK’s recent poor labour productivity performance has been due to the fact that employment held up well during the downturn and then picked up markedly,” he explained.

“Low wage growth increased the attractiveness of employment for companies. This meant that it was easier for companies to hold on to workers even when they did not really need them in order to retain their experience and knowledge.

“A major risk now is that prolonged uncertainty and concerns over the UK’s economic outlook ends up weighing down markedly on business investment and damages productivity. This could be compounded if foreign companies reduce their investment in the UK and this dilutes any beneficial spill-over of skills and knowledge.”

In November’s Autumn statement, Philip Hammond pledged to spend £23bn tackling the problem.

Explanations for weak productivity vary. Highly productive sectors such as financial services and oil and gas contracted after the financial crisis and there has been rapid growth in low-skilled, low-paid jobs.

Low public infrastructure investment and a patchy education system that has produced weak results for poorer and less able pupils have also been blamed.

Future restrictions on migration and an increased regulatory burden when trading with Europe as a non-EU nation are both predicted to damage productivity growth.

“As we leave the EU, the country needs to work harder than ever to demonstrate our doors remain open to the world,” said Yael Selfin, an economist at accountants KPMG.