The State of Britain

UK productivity problems persist, a decade of deficit reduction ends, and we are all a little happier

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The UK’s productivity puzzle continued, with productivity in the UK falling at its fastest annual pace in five years in the April-to-June quarter, according to the ONS.

The figure – measured by output per hour – fell by 0.5% after two previous quarters of zero growth. Both services and manufacturing saw a fall from April to June. Few would deny the fall is unwelcome, but we do have more people employed than ever before.

In response, the Government announced an £88m cash injection aimed at the next generation of supercomputers, and research into productivity imbalances, poor management practices and skills investment.

The £88m comes out of the Strategic Priorities Fund, which supports high quality multidisciplinary R&D as part of the government’s aim to invest at least 2.4% of GDP in research and development by 2027.

The last regional productivity figures show Inner West London had the highest labour productivity at 50% above the UK average, while the highest labour productivity level outside of London was in Berkshire, Buckinghamshire and Oxfordshire, a drop to 14% above the UK average. The lowest level was in Cornwall and Isles of Scilly at 32% below the UK average.

In a recent speech, former London Mayor, Boris Johnson, said he wants London’s vigour to spread into the regions, boosting productivity, growth and tax revenue.

London attracts the highest qualified workers, denuding underperforming regions of those most able to be productive. London is also much better at attracting inward investment from highly productive multi-national companies. Productivity is also highest among larger companies but in many regions of the UK, small companies dominate.

But let’s not forget, last month the current Mayor of London, Sadiq Khan, launched a report highlighting London’s contribution to the UK economy. Khan’s report outlined the economic case for how success for the capital means success for the UK as a whole.

In its latest estimate of regional public spending and regional tax revenues in 2018, the ONS concluded that only three regions ran a surplus and contributed c£60bn to the Treasury, of this London’s £34.3bn was by far the largest.

Killing the goose that lays the golden egg would be foolish. Instead let’s get regional policy right.

The Stats

The ONS said UK GDP fell by 0.1% in August but in the three months to August it grew by 0.3%. A weak performance across manufacturing was offset with TV and film production helping to boost the services sector. Annual growth is 1.3%.

GDP rose by 0.2% in the euro area and by 0.3% in the EU28 during the third quarter of 2019, according to a flash estimate by Eurostat. Annually GDP rose by 1.1% in the euro area and by 1.4% in the EU28. Key European economies remain sluggish; Germany has grown by 0.4% and France by 1.3%, with Italy at last showing some growth of 0.3%.

The UK labour market showed signs of slowing, with the level of employment falling by 56,000 to 32.69m and the level of unemployment increasing by 22,000 to 1.31m or 3.9%.

The euro area unemployment rate was 7.5% in September 2019 with the EU28 rate at 6.3%. The lowest unemployment rate in September 2019 was 2.1% in the Czech Republic and the highest was 16.9% in Greece.

The UK inflation rate was 1.7% in September 2019, unchanged from August 2019. Key downward contributions came from motor fuels, second-hand cars, and electricity, gas and other fuels. These were offset by upward movements from furniture, household appliances, hotel overnight stays, and from recreation and culture items.

Euro area annual inflation is expected to be 0.7% in October 2019, down from 0.8% in September, according to a flash estimate from Eurostat.

British public sector borrowing rose by 21.6% in the first half of the tax year, ending a decade of deficit reduction. Public sector net borrowing in September totalled £9.4bn, excluding public-sector banks, up from £8.8bn in September 2018.

This took borrowing in the six months from April to £40.3bn. Due to increasing public spending the government is on course to miss its target of keeping borrowing below 2% of gross domestic product in 2020/21.

ONS house price data showed average house prices increased by 1.3% in the year to August 2019, up from 0.8% in July 2019. Over the past three years, there has been a general slowdown in UK house price growth, driven mainly by a slowdown in the south and east of England.

The lowest annual growth was in London, where prices fell by 1.4% over the year to August 2019. The highest annual growth in England was in the North East, where prices grew by 3.3% and in the UK, Welsh house prices grew the most, at 4.5%.

Despite continual Brexit woes, we are all a little happier according to the ONS. In the year ending March 2019, there was a slight improvement in average happiness ratings although anxiety ratings increased in Northern Ireland which brought the Province back into line with other UK countries on this measure.

Folk in the Orkney, Western and Shetland Islands and Fermanagh and Omagh in Northern Ireland were the happiest. Residents in the London boroughs of Lambeth, Hackney, Islington and Camden were the most miserable.