New data from the Office for National Statistics (ONS) suggests that the UK economy's productivity growth between 2009 and 2019 was significantly higher than previously understood. The ONS has revised its estimate for this period from an average of 0.7 per cent per year to 1.3 per cent, nearly doubling the figure.
This re-evaluation follows the ONS's decision to rethink its calculations on productivity in the years since the Great Financial Crisis, incorporating data such as HMRC records to improve arithmetic. The original 0.7 per cent figure was used by the Office for Budget Responsibility (OBR) to judge former Chancellor Rachel Reeves's plans.
Last year, the OBR downgraded its trend productivity outlook to one per cent, a decision that reportedly underpinned tax hikes and created a challenging period for Reeves. Deutsche Bank economist Sanjay Raja noted that each 0.1 percentage point decrease in the OBR's forecast added approximately £7-8bn in costs against the Chancellor’s fiscal headroom, making the total downgrade worth around £25bn.
Despite the ONS revisions, current Chancellor John Healey is not expected to benefit from a major windfall. Economists do not anticipate the OBR will revise its productivity estimates so soon after last year's review, especially as the ONS's change is primarily due to downgrading the number of hours worked after the financial crisis.