The UK’s recent productivity performance has been calamitous. True, the productivity slowdown has been a widespread phenomenon among high-income countries. But Britain’s slowdown is remarkably bad even by these standards. The question is why. Recent research sheds light on this vital economic question. Why is it vital? The answer is that if recent performance continued, the economy would no longer generate rising real incomes per head. That would change everything for the worse.
Since the financial crisis of 2007-08, the UK’s growth of labour productivity has been about the same as Italy’s, in the performance basement of the high-income countries. Yet the UK suffered much the largest deterioration in productivity growth of any of the large high-income countries since the crisis. Its productivity levels are also among the lowest of the high-income countries, which indicates room for fast catch-up growth. This makes recent performance even more disturbing.
Even I had not realised how bad performance has been until I read a recent speech on productivity by the Bank of England’s Andy Haldane. “For the past decade, average productivity growth has been negative,” he said, adding “you would have to go right back to the 18th century to see a similarly lengthy period of stagnant productivity.”