As data shows 0.2% drop in output, two-thirds of leading UK economists say coalition austerity has been bad for the economy

This article is more than 5 years old

This article is more than 5 years old

David Cameron has presided over an economy with the weakest productivity record of any government since the second world war, the Office for National Statistics said as it revealed output per worker fell again in the final three months of 2014.

The ONS said productivity decreased by 0.2% in the third quarter of the financial year, leaving output per hour worked little changed on the previous year and slightly lower than in 2007, before the UK’s longest and deepest modern recession.



“These estimates show that the absence of productivity growth in the seven years since 2007 is unprecedented in the postwar period,” the ONS said.

Government keen to crow about jobs created – less so productivity Read more

Labour seized on the data showing that two years of solid growth have failed to translate into the customary recovery in wage and productivity growth. Shadow business secretary Chuka Umunna said the economy “simply isn’t working for working people”.

The ONS figures show that with workers producing less than they did in 2007, Britain’s productivity gap with its major economic rivals, such as the US, Germany and France, has widened. The UK has the second worst productivity record of the G7 leading Western industrial nations.



Weak productivity has been the flipside to strong employment growth, since the increase in the number of people working has not been matched by the hourly output of goods and services they have produced.

Up until the global economic crisis, the efficiency of UK workers tended to increase by around 2-2.5% a year. Had that trend continued, productivity would have been 15% higher than it was before the recession.

An alternative measure of productivity, output per worker, showed some growth in 2014 as a result of employees working longer hours.

“This still isn’t great – productivity [growth] has still not even returned to its long-run average rate of about 2%, let alone recouped any of the shortfall relative to its pre-crisis trend,” said Vicky Redwood, UK economist at Capital Economics.

The ONS said, despite Britain’s poor productivity, businesses were keeping their costs in check by keeping a lid on their wage bills.

Labour is likely to use the latest data to make the case that higher employment is not leading to a pickup in wages and the sort of boost to living standards that would normally follow a recovery in the economy.

In a separate blow to the government, a poll of leading economists showed that two-thirds believed George Osborne’s austerity programme had been bad for the economy.

The Centre for Macroeconomics polled 50 economists, asking them whether they agreed that the government’s deficit-reduction strategy had had a positive impact on growth and employment. One-third disagreed and a further third strongly disagreed. Only 15% agreed, with none strongly agreeing.

There was better news for the government from the latest snapshot of manufacturing from CIPS/Markit. This showed activity standing at 54.4 points in March, up from 54.1 points in February, its highest level since last August. Any reading above 50 indicates manufacturing is expanding rather than contracting.



Howard Archer, UK economist at IHS Global Insight, said: “This is a generally very reassuring survey, which indicates that the manufacturing sector is in decent shape despite latest hard data showing manufacturing output fell back 0.5% in January.”

Umunna said: “Under the Tories, we’ve seen the rise of a low-wage, low-skilled economy and insecure work as productivity has stagnated, with real wages down by an average of £1,600 a year.



“Labour’s better plan will boost high-skilled, better-paid jobs. We will raise the minimum wage and incentivise firms to pay a living wage, ensure every school leaver with the grades can access a high-quality apprenticeship and back small firms by cutting – then freezing – business rates.

TUC general secretary Frances O’Grady said: “The UK is fast becoming a low-wage, low-productivity economy. We won’t see the improvements needed in pay or productivity if the Conservatives get the chance to deliver their plans for more extreme austerity after the election.”

John Philpott, director of the Jobs Economist consultancy, said: “The UK’s currently very good headline GDP growth and jobs data conceal a worrying underlying picture of a low wage, labour intensive economy that does not bode well for widespread ongoing improvement in the overall standard of living.

“Although the dire labour productivity figures might not feature too high in political rhetoric and voter concerns during the general election campaign, how to boost productivity is ultimately the most important economic question now facing UK policymakers, business leaders and workers.”