This edition of the UK Economic Outlook was published in November 2019. While we believe the content remains of interest, it doesn't take into account major events since that date, including the recent global COVID-19 pandemic.
We’re publishing frequent economic analysis on the impact of COVID-19 - view it here
Explore the causes and drivers of the UK’s productivity challenge and the gains from closing the productivity gap
boost to GDP from increasing UK productivity to German levels
boost to GDP from halving regional productivity gaps
Updated March 2020
Due to the significant impact that COVID-19 is having on businesses and the economy, we've updated this page to focus only on our analysis of the UK’s productivity challenge, its causes and drivers, and the potential gain to the UK from closing international and regional productivity gaps. Our data tool allows you to compare the productivity performance of different regions in the UK and how it has evolved over time.
The latest data suggests that UK output per worker lags around 10-15% behind Germany, France and Sweden and more than 30% behind the US, although this gap is smaller when measured on an output per hour basis (except for the US).
Our analysis shows that, with the partial exception of Germany, these productivity gaps are not due to the UK having too small a manufacturing base. Instead they reflect lower average UK productivity within certain industry sectors (e.g. retail and wholesale) relative to other advanced economies.
Comparative international evidence suggests that relatively low UK levels of investment and R&D spending and a longer tail of companies and workers with relatively low productivity and skills are the main reasons for this productivity shortfall.
Future policy needs to be targeted on investing more in each of these areas, but business also has a key role to play in achieving these aims, notably through upskilling their employees.
We apply a regional lens to the ‘productivity puzzle’ by examining disparities in regional productivity and the causes and drivers of these differences. There is a significant regional disparity which has grown over time: London – the most productive Local Enterprise Partnership (LEP) – is now more than twice as productive as the least productive LEP in 2017, compared to 1.8 times in 2002.
While differences in the composition of industrial activity can explain some regional differences, variations in skills and connectivity appear more significant.
These findings suggest that both policymakers and businesses need to focus on upskilling workers, particularly in areas where there are skills gaps. Investing to improve the quality and capacity of local infrastructure could help boost the connectivity of a place (and consequently its productivity).
The economic prize for getting this right is potentially significant. If areas that are currently performing below the UK average can close 50% of this productivity gap, this could boost total UK GDP by nearly 4%, equivalent to around £83 billion per annum at today’s values.
See how productivity performance differs at the regional and local level using our interactive data explorer below.
Please select two regions or local areas to compare their productivity performance and their performance on the drivers of productivity, such as the industrial composition, connectivity, R&D spending, workplace skills and share of large enterprises.
The heatmaps below show how UK productivity performance differs across regions and local areas. Toggle between the years to see how productivity has changed over time across different areas.
The maximum value (in grey text) for each bar is the highest regional value in that category.
Short-distance connectivity: Score based on an area’s access to the economic mass of other regions
Digital connectivity: Proportion of fixed broadband connections faster than 30 Mb/s
SOC skills level 4 is comprised of professional occupations and high-level managerial positions in business or government.
Sector definitions: Primary services include: Agriculture, mining, energy and utilities; Low value services include: Retail and wholesale, accommodation & food services, transportation and storage, administration and business services and arts, entertainment and recreation services; High value services include: Information and comms, Financial and insurance services, professional and scientific services and other services; Public includes: Public administration and defence, Education and Health and social care services.