OBR: UK productivity estimates must be ‘significantly’ revised down

UK productivity
UK productivity is to be revised down in a blow to the economy.

The Office for Budget Responsibility (OBR) has suggested that it will have to ‘significantly’ revise down its estimates for UK productivity.

The Government’s independent forecaster says an average of 0.2 percent growth in productivity across the next five years is more accurate than 1.6 percent estimated in March.

This reflected the marked slowdown of the productivity of UK workers in recent months, more than a decade after the 2008 financial crisis.

Robert Chote, the OBR chairman commented on the previous estimates:

“Our assumption that productivity growth would return to a more normal rate within a few years reflected a judgement that whatever factors were depressing it in the wake of the financial crisis would fade as it receded further into the past.

“But as the period of weak performance gets longer, the explanations that people pointed to immediately after the crisis [for an upturn] look less convincing and others seem more plausible.”

It is estimated that the revision will will wipe out almost two-thirds of the government’s £26 billion budget surplus from 2017 to 2021, according to Treasury officials.

This comes just ahead of Chancellor Philip Hammond’s highly anticipated Autumn Statement, which is set to be delivered in November.

In addition, speculation continues to circulate regarding the Bank of England’s and its impending decision on interest rates.

Despite various hints from the central bank’s officials, such as Governor Mark Carney, it remains to be seen whether the bank will indeed take the plunge to revise its monetary policy and revise interest rates.

An publicized error from the Office of National Statistics (ONS) data has only placed further pressure upon the bank’s upcoming decision.

The ONS conceded that it had made an error with regards to its labour cost figures, which had been accidentally based on old figures.

The ONS said: “As announced on October 6, 2017, an error occurred in unit labour cost data. We have corrected this error in this release. This was due to income data from the second estimate of GDP being used instead of data from quarterly national accounts.”

The ONS initially said that unit labour costs increased by 1.6 percent year-on-year in the second quarter of 2017, which was later corrected to 2.4 percent.

Economists expect that this may prove somewhat more in favour of the Bank of England’s expected move to raise interest rates from 0.25 percent to 0.5 percent at the Monetary Policy Committee’s meeting next month.