UK productivity during the Blair era

Productivity is a key indicator of economic health and increasing productivity has been a key objective of the Labour government since 1997. UK labour productivity (GDP per hour) has traditionally been lower than other major industrialised countries. •In recent years, the gap in labour productivity with respect to France and Germany has gradually narrowed. Although these improvements are evident since 1991, prior to the Blair government, we would normally have expected productivity growth to have slowed by this point in the business cycle. •Despite these recent improvements, output per hour worked in the UK is still about 13% lower than Germany’s, 18% below the US level and 20% below France. •Low UK productivity is partly due to a deficit of innovation and skills. Recent evidence also suggests that part of the gap might be driven by weaknesses in management. •UK productivity benefits from a high degree of competition and openness to trade and foreign investment. •Since 1997 total GDP growth has been driven mainly by increases in employment and capital (especially information technology) rather than increases in overall efficiency.