Press Story

Today’s data from the ONS shows productivity in Q2 is down by 0.8 per cent compared to a year earlier
The decline in productivity is largely driven by higher than expected increase in working hours, however these numbers will likely be revised in the future
The OBR is under pressure to downgrade its productivity forecast, costing the Exchequer billions, but this is premature says IPPR

Reacting to today’s quarterly productivity statistics from the ONS, Carsten Jung, associate director for economic policy at IPPR, said:

“Today’s productivity data shows that the UK economy still faces challenges. But, all forecasters agree that productivity will rebound — the real question is by how much.”

“There is growing pressure on the OBR to downgrade its productivity growth forecast. Some of the larger numbers floated would have close to austerity-level implications for the UK.

“The OBR should resist making such a change now. Interpreting the UK’s productivity statistics at the moment is like navigating through fog — the uncertainties are vast. There are, in fact, some grounds for optimism about a recovery.

“By holding the line this autumn, the OBR can avoid triggering damaging fiscal tightening and give itself time to act when the outlook becomes clearer.”

New analysis out this morning from IPPR, will say in further detail:

Economists are pressuring the OBR to cut its productivity forecast in this autumn’s outlook, citing years of weak performance. The fiscal impact could range from negligible to a £44 billion hit to the public finances — all from changing a highly uncertain forecast. Given such high stakes, the evidence for a downgrade must be robust.
There are three reasons why the case is not strong enough:
1. The latest ONS data is broadly in line with the OBR’s expectations, not contradicting them.
2. The Bank of England — previously more pessimistic than the OBR and a driver of calls for alignment — has upgraded its forecast, bringing it close to the OBR’s.
3. There remains exceptional uncertainty about recent productivity figures and the economy’s recovery path.
As such, the OBR should hold off on any downgrade until the data offers a clearer view.

ENDS

Carsten Jung is available for interview. Carsten is an associate director at IPPR and a former economist at the Bank of England.

CONTACT

Rosie Okumbe, digital and media officer: 07825 185421 r.okumbe@ippr.org

Liam Evans, head of news and media: 07419 365 334 l.evans@ippr.org

NOTES TO EDITORS

IPPR’s new analysis on the OBR productivity forecast will be available online here: https://www.ippr.org/articles/navigating-in-the-fog

IPPR is the UK’s most influential think tank, with dozens of alumni in Downing Street, the cabinet and parliament. We are the ideas factory behind many of the current government’s flagship policies, including changes to fiscal rules, the creation of a National Wealth Fund, GB Energy, devolution, and reforms to the NHS. IPPR is an independent charity which has seconded staff to government departments including DHSC and DESNZ to support ministers on crucial policies such as the 10-year health plan and the industrial strategy: www.ippr.org