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UK productivity falls further to eat into Chancellor's buffer

Fri, 6th Oct 2017 12:47


(ShareCast News) - Already low British productivity is worsening, official figures showed on Friday, which is expected to lead to reduced growth forecasts and limit

Data from the Office for National Statistics showed productivity per hour worked dipped 0.1% in the second quarter after a large 0.5% drop in the first three months of the year, leading to a 0.3% drop year on year.

Labour productivity grew in services 0.2% in the second quarter but fell 1.3% in manufacturing, with gross value added in the economy growing at a slower rate than the number of hours worked, which were lifted by higher employment.

The ONS reported that, in terms of output per hour worked, the gap between the UK and the rest of the G7 was 15.1% in 2016.

The further decline in productivity comes on the back of reports that the Office for Budget Responsibility will cut its productivity growth estimates for the UK economy as it prepares the forecasts for the Chancellor's Budget on 22 November, in an acknowledgement that it has overestimated productivity in recent years.

A cut in budget forecasts from the OBR will eat into the 26bn buffer that the Chancellor currently has in meeting his fiscal targets for 2020-21.

Howard Archer, chief economic advisor to the EY ITEM Club, said the second successive dip in productivity fuels concerns over the UK's overall poor productivity record since the deep 2008/9 recession, even allowing for the possibility that there may well have been an appreciable cyclical element in the drop in the first half of 2017.

"There is a risk that prolonged uncertainty and concerns over the UK's economic outlook could end up weighing down markedly on business investment and damage productivity. Prolonged difficult Brexit negotiations could increase this risk," he said.

Productivity had grown modestly in three out of four quarters in 2016 but Archer said the further dip this year was all the more disappointing as the UK has a lot of catching up to do on the productivity front compared to other G7 countries.

ONS head of productivity Philip Wales said: "UK labour productivity continued to lag behind our international partners in 2016. New innovative analysis suggests that this lower level of productivity was evident across all industries, although the size of the gap varies considerably.

"UK companies in receipt of investment from abroad were significantly more productive than those that were not in 2015, even after controlling for firm size, industry and region. However, this may be a reflection that international investment tends to flow into the most successful businesses."




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