Britain must boost productivity to complete post-crisis recovery, says OECD

The UK economy has seen strong growth but it is imperative that productivity and living standards are increased to secure Britain's economic recovery, according to a leading thinktank.

The Organisation for Economic Co-operation and Development (OECD) said the UK economy has given the "strongest performance" between early 2013 and 2014 among the G7 countries.

The research body explained that the growth has been against a background of "subdued growth" across the euro area and noted that Britain's employment rate had bounced back to its pre-financial crisis levels.

But the OECD warned that the recovery could be put at risk because of low productivity, which is keeping real wages down.

"The sustainability of economic expansion and further progress in living standards rest on boosting productivity growth, which is a key challenge for the coming years," the report said.

"Improving productivity requires further structural reforms and is key to higher sustainable GDP and wage growth."

The analysis comes after the Office for National Statistics (ONS) said that output per hour in the UK in 2013 was 17% below the average for major G7 countries – the largest gap since 1992.

The research body also revealed that output per hour fell in 2013, while output per worker grew.

John Philpott, a jobs economist, told IBTimes UK that low productivity has "bedevilled" the UK economy for years.

"The OECD has provided a very useful review of possible answers to the UK's productivity puzzle although the suggested remedies, including improved investment in education and skills, re-tread familiar terrain," he said.

"Whoever forms the next UK government will doubtless agree with much of the OECD's analysis.

"But it remains to be seen whether quick progress can be made on overcoming structural barriers to faster productivity growth that have bedevilled the UK economy for years."

The 'key' problem

Adam Memon, head of economic research at the Centre for Policy Studies (CPS), shared some opinions with Philpott.

He told IBTimes UK that flagging productivity had been the "key" problem with Britain's economic recovery.

"Despite the improvement in employment and economic growth, because productivity has not really increased at all since 2007, that means that real wages haven't grown and tax revenues haven't increased," he explained.

"The OECD makes a point that this hasn't really been a tax-rich recovery and that's largely to do with productivity."

The Paris-based thinktank also warned that Britain's "very large" banks could pose a risk if they are not capitalised well.

In addition, the OECD said further "structural reforms" were required to boost competition in the small and medium-sized enterprise (SME) credit market and to increase credit provision to SMEs in the medium term.

"Smaller, faster growing companies haven't really had access to capital, which is holding back investment and productivity," Memon said.

"It's an issue which is important for the next government to try to resolve because without that you aren't going to get the proper investment that we need."