Keen new chancellor, John Healey, responded to last week’s better-than-expected economic news by claiming the government is “bringing hope back”. Growth did not plunge as feared after Donald Trump unleashed war on Iran – with GDP expanding at a pretty decent 0.4% in the second quarter.
But what if we should have held on to a bit more hope all along? A new assessment of the UK’s recent productivity suggests this critical measure of the country’s economic strength may have been systematically underestimated.
Instead of stagnation, it points to a “meaningful pickup” in productivity since mid-2024, with annual growth of about 1.6% – up from an average of 0.3% in the previous decade.
This was very much not the prevailing narrative since Labour came to power. Indeed, Rachel Reeves spent months last year scrambling to respond to a downgrade in productivity projections from the Office for Budget Responsibility (OBR) – from 1.3% annual growth to 1% – with a knock-on effect for the public finances.
