The UK’s long-term economic challenge is to address the long-standing shortfall in productivity levels relative to other advanced economies

The latest data suggests that UK output per worker lags around 10-15% behind Germany, France and Sweden and more than 30% behind the US, although this gap is smaller when measured on an output per hour basis (except for the US).

Our analysis shows that, with the partial exception of Germany, these productivity gaps are not due to the UK having too small a manufacturing base. Instead they reflect lower average UK productivity within certain industry sectors (e.g. retail and wholesale) relative to other advanced economies.

Comparative international evidence suggests that relatively low UK levels of investment and R&D spending and a longer tail of companies and workers with relatively low productivity and skills are the main reasons for this productivity shortfall.

Future policy needs to be targeted on investing more in each of these areas, but business also has a key role to play in achieving these aims, notably through upskilling their employees.

