Britain’s productivity gap with other G7 nations has widened to its largest since estimates began in 1991, according to official figures.

Data from the Office for National Statistics (ONS) showed that the output per hour from UK workers in 2014 fell to 20 percentage points below the average of other leading industrialised nations.

Illustration: ONS

The figures underscore the challenge for the chancellor, George Osborne, who has made raising the UK’s poor productivity growth a priority. On the latest estimates, only Japan in the G7 performed worse than the UK last year in terms of output per hour worked. The UK was behind France, Germany and the US by 32-33 percentage points.



UK 33% less productive than Germany but 15% more productive than Japan in 2014 http://t.co/695NJYz538 — ONS (@ONS) September 18, 2015

Employment is at a record high, according to official figures this week, but the challenge for policymakers and businesses is getting more output out of each hour worked. On an output per worker basis, UK productivity was also 20 percentage points below the average for the rest of the G7 in 2014, the ONS said.



A spokeswoman for the Department for Business, Innovation and Skills said the government was “committed to delivering a return to productivity growth which is the route to raising living standards for everyone in the UK.”

“The reforms set out in our productivity plan - Fixing the Foundations - will deliver a step change that will increase long term investment in people, capital and ideas and help to realise the ambitions of hard working people.”



In July, the business secretary, Sajid Javid, announced a mix of deregulation and government intervention across housing, apprenticeships, skills, universities, transport and finance in an effort to address “the economic challenge of our age” - the UK’s poor productivity performance.

But responding to the latest figures, TUC general secretary Frances O’Grady said the government’s upcoming spending review and plans for more austerity did not bode well for the UK’s competitiveness.

“We need a better economic plan focused on higher public investment in modern infrastructure and workforce skills. A new round of severe public service cuts and pay freezes will keep the UK in the slow lane,” said O’Grady.



The latest figures suggested the UK still had a long way to go to shake off the effects of the financial crisis.



Statisticians said that output per hour was lower in all G7 countries in 2014 than would have been the case if pre-downturn trends had continued since 2007. The UK’s productivity gap of about 18% compared with a gap of about 7% for the rest of the G7.

Illustration: ONS

Policymakers have been debating Britain’s “productivity puzzle” as they seek to assess whether the losses during and after the downturn will prove to be permanent. If productivity growth does not recover to its pre-crisis trend that has implications for inflation. If firms cannot raise output per hour they may well raise prices instead to maintain their profit margins.

That in turn will influence the Bank of England’s decision over when to start raising interest rates from their current record low of 0.5%, said Howard Archer, economist at IHS Global Insight.

“How productivity develops going forward will be a critical factor in how soon and how far the Bank of England raises interest rates. If productivity has taken a significant lasting hit, it means that the economy has less potential to grow without generating inflationary pressures and that interest rates will need to rise at an earlier stage,” he said.