Britain's productivity rises to pre-crisis level but remains behind G7 economies

Britain's productivity returned to pre-financial crisis levels for the first time since the downturn, but remains behind other leading economies in the G7.

Output per hour grew 0.6% in the second quarter of the year and rose 0.4% year-on-year, according to the Office for National Statistics (ONS), which recaptured growth lost following the 2008 financial crisis.

There is a widening gap between Britain and the rest of the G7 - an informal bloc of industrialised democracies including UK, US, Canada, France, Germany, Italy and Japan - as it remained around 18 percentage points in gross domestic product per hour worked in 2015, which was unchanged from 2014.

British productivity in 2015 was 27 percentage points lower than France, 30 lower than the US and 35 lower than Germany and only above Japan amongst the G7 economies.

The ONS estimated that public sector productivity also decreased by 0.6% in 2015, revised down from a fall of 0.2%, but said it had an upwards trend since 2009 with growth of 3.2%.

Productivity had lagged behind other developed countries even before the crisis and had weakened over the period since, as the ONS said productivity was 17% below where it would have been if the country had been able to maintain its pre-downturn growth, in comparison to the 9% fall other countries would have experienced.

ONS chief economist Joe Grice said productivity and Britain’s “sluggish growth” over the last decade or so, are central issues for the economy.

Speaking at the Conservative party conference on Monday, Chancellor Philip Hammond said he would improve Britain's wilting productivity: “If we raised our productivity by just 1% every year, within a decade we would add £250bn to the size of our economy, £9,000 for every household in Britain.”

The need to improve low productivity is expected to become even greater with the country leaving the European Union and uncertainty surrounding the nature of Brexit and future trade arrangements.

Howard Archer, chief UK and Europe economist at IHS Markit, said a key factor over the long-run is whether the country would see significantly reduced regulation outside the EU and if it would help create the more business-friendly and entrepreneurial culture that supporters of Brexit claimed it would.

“The downside risk is that prolonged uncertainty and concerns over the UK’s economic outlook weighs down heavily on business investment and damages productivity. This could be compounded if foreign companies markedly reduce their investment in the UK and this dilutes any beneficial spill-over of skills and knowledge."

Archer added: “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 said many of the new jobs created may have hurt productivity as they are in less-skilled, low-paid sectors where productivity is limited.