UK productivity threatens public purse: watchdog
10 Oct 2017 - 22:54
London: British productivity growth is lower than previously forecast, the UK fiscal watchdog warned on Tuesday, dealing a blow to the government before next month's budget.
The Office for Budget Responsibility (OBR) also said it would "significantly" reduce its estimate for productivity growth over the next five years -- which will hit forecasts for economic growth and public finances.
Finance minister Philip Hammond will deliver his Autumn Statement budget update on November 22, when he will unveil the latest OBR projections amid ongoing Brexit uncertainty.
"While we continue to believe that there will be some recovery from the very weak productivity performance of recent years, the continued disappointing out-turns, together with the likelihood that heightened uncertainty will continue to weigh on investment, means that we anticipate significantly reducing our assumption for potential productivity growth over the next five years," the OBR said.
It continued: "It is highly likely that the downward revision to productivity growth will dominate in terms of its effect on cumulative GDP (gross domestic product) growth over the forecast horizon and the associated consequences for the budget deficit."
The OBR watchdog blamed the likely productivity downgrade on factors including weak business investment, low interest rates -- and Britain's looming EU exit after last year's shock referendum.
Productivity refers to the average level of output produced per worker or per hour.
"Heightened uncertainty created by the Brexit vote" may have encouraged firms to expand production by hiring flexible labour rather than making more permanent investment in capital, the report said.
The OBR had originally predicted a pick-up in productivity after the "temporary" influences of the post-2007 financial crisis period.
However, it cautioned Tuesday that the UK has faced a decade-long "hiatus" in productivity growth.
"Productivity has been a longstanding challenge for the UK economy, which is why we are focussed on boosting our performance to deliver higher living standards and build an economy that works for everyone," a Treasury spokesman said.
General Secretary of the Trades Union Congress umbrella body, Frances O'Grady, gave a more critical assessment of the gloomy news on Tuesday.
"Britain's productivity headache is a self-inflicted wound. Years of cuts, low public investment, and rising job insecurity have taken a heavy toll," O'Grady said.
"With Brexit fast approaching, we urgently need to create more highly-skilled jobs."