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Productivity gap between Britain and G7 nations goes up

Productivity gap between Britain and the U.S. and other G7 nations except Japan widened sharply in 2004, according to official figures.

Published :
Fri, 24 Feb 2006 09:25
By : Phil Bateman
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LONDON: Productivity gap between Britain and the U.S. and other G7 nations except Japan widened sharply in 2004, according to official figures.

The Office for National Statistics (ONS) published data indicating the country's productivity, measured by annual output per worker, was 11 per cent behind the average for other members of G7, while it is 27 per cent behind that of the U.S.

The ONS data showed that the gap was slightly better based on the alternative measure of output per hour worked, but still the country was lagging 8 per cent behind the rest of the G7 and 16 per cent behind the U.S.

Most of the analysts blamed the performance of the state sector for this a poor show. They pointed out that the amount of output for a given input of resources has been declining in some public services.

The situation could be worse in 2005, for which figures have not been computed, as the country's economy grew at a slow pace during the year. Experts cited sectors such as health, education and public administration as the weak links. They were worried that the government is not showing any indication of addressing this problem.

Chief economist at the Chartered Institute of Personnel Development John Philpott said the figures will make sober reading for chancellor Gordon Brown. "Not only is the gap with the U.S. getting wider but were these figures to include 2005 it is likely that they would show the U.K. lagging further behind the U.S. than when Mr Brown took charge at the treasury in 1997," he said.

The ONS also came out with another damaging revelation -- that businesses in the country had cut investment spending by 1 per cent in the final quarter of 2005 thereby restricting annual growth to just 0.3 per cent. This will mean that the share of business investment in overall GDP is the lowest since 1965.

There are fears among economists that this could indeed thwart efforts aimed at economic recovery. Some of them felt the lower investment level could be on account of the businesses' desire to cover pension deficits. Also, corporate debts, which had increased recently, and uncertainty over the tax regimen could have prevented the businesses from making fresh investments.

The ONS specifically mentioned the manufacturing sector, which suffered an annual decline of 8.3 per cent. Drops in this as well as production, construction and distribution services largely neutralised a rise in the wider services sector, it said.

Several analysts feel this data should provide sufficient ground for the Bank of England to review its interest rates policy. They also recalled the argument put forward by Steve Nickell, member of the bank's Monetary Policy Committee, that shortfalls in investment could lead to a weaker growth than the bank expects, which will in turn call of a cut in interest rates.

Shadow chancellor George Osborne described the situation as "a double whammy". He said the chancellor is not preparing Britain to compete in the global economy. "The chancellor described productivity as 'the fundamental yardstick of economic performance' and he is fundamentally failing on his own measure."


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