PRODUCTIVITY IN THE UK ECONOMY

10 October 2021

At last week’s Conservative conference, the Prime Minister championed a high-wage, low-immigration economy driven by high productivity, accusing firms of being drunk on cheap labour from abroad. But unless productivity is also there, it will simply lead to higher inflation and require a more stringent response from the BoE.

For all the PM’s urging, growth in productivity, which allows the economy to get more bang for its buck, has been anaemic for a decade or more. The best way, really the only way, to achieve a sustained rise in real wages is through higher productivity growth. But are there any signs of that? So far, no.

In any case, what are the answers to how to raise productivity among the likes of HGV drivers, or baristas in coffee shops? It’s very hard in advance to anticipate the details of how productivity growth can pick up, but we know the general conditions which help :

Productivity growth occurs when the economy grows steadily, business investment is strong, firms are able to plan for the long term, there’s an emphasis on skills, training, a well educated workforce, flexible markets. Once you have those conditions, and firms feel confident that they will continue, you tend to see productivity growth and you’re more likely to see it in different sectors.