27 November 2017
Last week’s Budget was dominated by gloomy economic prognostications. Yet, as we all know, economists have a less than distinguished record when it comes to forecasting almost anything, let alone the most slippery things, such as our productivity performance. Even so, the Office for Budget Responsibility (OBR) has forecast this all the way out to 2022. That is what Sir Humphrey would have called brave.
Without the benefit of any substantive new evidence since the latest forecasting exercise in March, it has reduced its forecast for productivity growth by 0.5pc per annum. It seems as though the OBR has capitulated out of sheer exhaustion after being wrong on this subject for so long. It has been in good company.
Paraphrasing Winston Churchill, economists have much to be modest about. The recent collapse in productivity growth was not foreseen by the OBR nor by anyone else. It would be odd, therefore, to be confident in the current view that productivity’s recent poor performance is going to endure. For a start, it will partly depend upon policy, incentives and economic structure.
Putting aside the vexed question of whether productivity performance is correctly measured (it isn’t), there are some good reasons why even officially recorded productivity growth may well recover.
One thing that is going to help is the strong prospective growth of exports, which will boost the manufacturing sector. This is important because manufacturing tends to have a higher rate of productivity growth than the rest of the economy.
To read Roger Bootle’s piece for the Daily Telegraph in full, click here.