The UK has experienced a severe decline in productivity over the last five years, a development described as “almost unprecedented” and a significant challenge for the Chancellor’s aspirations for economic growth.
The Resolution Foundation reported that GDP per capita fell by 0.5% from 2019 to 2024, the most substantial decrease since the 1970s, excluding the period of the financial crisis.
This contrasts sharply with the Office for National Statistics (ONS), which initially suggested a 1.8% increase during the same timeframe.
The recent figures highlight the ongoing difficulties faced by the UK economy, as Rachel Reeves seeks effective policies to stimulate growth and mitigate the impacts of Donald Trump’s trade policies.
This productivity slump not only underscores the challenges to improving living standards in the UK but also contrasts with a robust increase of 9.1% in US productivity over the past five years.
Simon Pittaway of the Resolution Foundation commented on the severity of the UK’s productivity issue, noting that the situation has worsened since the financial crisis, further hampering any real growth in living standards.
Additionally, the ONS has faced criticism for potential inaccuracies in its labour market data post-Covid, which has been labeled as “experimental” or “in development”.
Using payroll data and a short-term ONS survey, the Resolution Foundation has presented a more dismal evaluation of UK productivity.
Following these findings, the statistics watchdog has urgently called for the ONS to enhance its economic indicators to regain public trust.
The implications of these findings are particularly troubling for the Treasury, as any significant downward revisions could jeopardize the fiscal strategies laid out by Ms. Reeves.
This comes at a time when the Chancellor is also contending with rising claims for sickness and disability benefits, adding further pressure on public finances.
The report from the Resolution Foundation paints a bleak picture, positioning the UK as having one of the worst productivity records among the G7 nations since 2010, only outdone by debt-ridden Italy.
Factors contributing to the widening productivity gap with the US include the decline in the UK’s North Sea oil and gas reserves over the last two decades.
Despite maintaining the same working hours as in 2019, the sector has seen a significant drop in output, whereas in the US, reduced working hours have coincided with a boom in extraction activities.
The think tank also identified that a key advantage for the US lies in its professional, scientific, and technical services sector, which has heavily invested in new technologies, thereby enhancing productivity.
In contrast, the UK has seen only a 17% increase in investment in software since the pandemic, compared to 42% in the US. The Resolution Foundation has advised Ms.
Reeves to extend business tax incentives to include software investments, not just physical investments, to help bridge this gap.
