Recent figures published by the Office for National Statistics (ONS) highlight the UK's productivity gap, with output per hour recorded at 21 percentage points below average relative to other countries in the G7 group of nations – the United States, Japan, France, Germany, Italy and Canada.
The largest productivity gap since 2012, figures for UK output per hour and output per worker both fell in 2012, compared to unchanged output per hour and a slight improvement in output per worker on average within the G7.
This relates to figures published by the ONS earlier this month that reported a consistent fall in real wages since 2010, the longest period in 50 years. The ONS has suggested that low productivity growth appears to have contributed to this decline.
"What we have here is a classic case of the chicken or the egg," says Carl Hasty, Director of international payments specialist Smart Currency Business. "Low productivity growth is causing a fall in real wages, and the fall is related to low productivity."
"There has been a recent surge in UK manufacturing, which is promising for the economy," continues Hasty. "However, manufacturers have passed a portion of their higher costs on to consumers in terms of higher prices. As far as UK consumers are concerned, higher prices contribute to the drop in real wages, which then has an adverse effect on productivity.
"This vicious circle needs to be solved with external support, in terms of business investment. We are only just beginning to dip our toes into the pool of economic recovery, but the productivity gap highlights the need for robust investment, to help businesses improve the essential technology and skills needed to close the gap – and to help UK businesses flourish and prosper."