The UK productivity challenge

 

Article from an occasional series of topical thought pieces sent by Head of Global Corporates Clare Francis to Lloyds Bank Business Leaders community.

About the author

Clare Francis

Managing Director and Head of Global Corporates, Lloyds Bank

Since the 2007-8 financial crises labour productivity growth in the UK has been particularly weak. The Office for National Statistics data for 2015, released last month, showed that while the UK’s productivity rate had returned to pre-crisis levels for the first time it still lags considerably behind the rest of the G7 group of leading economies.

UK productivity was 27 percentage points lower than in France, 30 percentage points lower than in the US and 35 percentage points lower than in Germany. The Bank of England sees it is an important macroeconomic indicator and it matters because increases in labour productivity lead to a higher growth rate and positive social impacts in terms of sustainable improvements in wages and living standards. The Chancellor Philip Hammond recently pointed out that raising productivity by just one percent per year would add £250 billion to our economy in a decade. The issue is that neither the economists nor the Government are entirely sure what is causing our productivity problem or how to get UK productivity growing again.

In line with our continuing efforts to understand the issues facing our clients, we were interested to find out what business is thinking in this area. Working with the Manufacturing Technologies Association, Lloyds Banking Group surveyed, this summer, 1500 British businesses, including 300 manufacturers, about their views on productivity trends. A preview copy of the report is available here.

The study shows overwhelmingly that business recognises the “productivity problem” for the economy as a whole. Interestingly over half of those surveyed do not see it as a problem within their own businesses and the majority feel they have recognised the issues and have plans in place to improve productivity. Business nonetheless sees two big challenges in addressing productivity growth: improving quality of labour and skills and boosting innovation. The ability to make the necessary investment to meet these challenges is seen as vital. However, uncertain economic conditions are highlighted as the greatest obstacle to investment plans and business is clearly looking to government to provide stability. At the same time skills shortages are also inhibiting the opportunities to make investment in innovative smarter business models.

We will have the opportunity to discuss this and more at our next and fifth Business Leaders Summit. As you know, the Summit gathers thought leaders from business, academia and politics together each February to obtain insights, to share experiences and to examine and debate the topics of the day. The 2017 Summit will take place on Monday 6th February 2017 at The Savoy in London.

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