In a major blow to Chancellor Philip Hammond ahead of his autumn Budget next month, the Office for Budget Responsibility (OBR) said it was likely to “significantly” lower its predictions for growth over the next five years.
The OBR said there would still be some recovery from the “very weak productivity performance of recent years,” but that “disappointing out-turns” and the “likelihood that heightened uncertainty will continue to weigh on investment” called for a revision of its expectations.
The Chancellor had relied on financial “headroom” of £26 billion to get the economy through Brexit, but the shift announced yesterday is likely to put that in jeopardy.
Productivity is the measure of the amount of work produced either per worker or per hour worked.
The OBR said the causes of the surprisingly low productivity could include labour hoarding, banking sector impairment, very low interest rates and weak investment.
A Treasury spokesman insisted: “Productivity has been a long-standing challenge for the UK economy, which is why we are focused on boosting our performance to deliver higher living standards and build an economy that works for everyone.”
Productivity growth has averaged just 0.2 per cent over the past five years. This is far short of the 2.1 per cent a year rise seen in the pre-financial crisis era.
TUC general secretary Frances O’Grady said: “Britain’s productivity headache is a self-inflicted wound.
“Years of cuts, low public investment and rising job insecurity have taken a heavy toll.
“Ministers need to return to the drawing board. Our yawning productivity gap is holding our economy back.
“With Brexit fast approaching, we urgently need to create more highly skilled jobs and improve workforce training and engagement.”