Low productivity threatens pay

Industry leaders warned yesterday that productivity levels in manufacturing needed to improve sharply or the economy could be confronted with a new pay and prices spiral as the recovery continued, writes Michael Harrison.

The Confederation of British Industry said that latest figures showed Britain was lagging behind its main competitors with a productivity improvement of just 0.4 per cent in the second quarter, compared with 4 per cent in the US and 3 per cent in Japan.

Adair Turner, the CBI's director-general, said: "With few signs that pay pressures are out of control, the challenge now is to raise our sluggish productivity growth. Inflation is being kept under control by competitive pressures and we haven't yet seen the skills or labour shortages which lead to spiralling pay awards.

"It is vital that companies now focus on improving productivity to prevent these pressures emerging as the recovery continues."