March 28, 2006 | posted by Michael Baxter in Uncategorized |

Why is the UK outperforming most other G7 economies? Some argue that this isn’t saying much anyway, and that as three of the members are in the Eurozone, and therefore little more than has beens, and another member is ‘dire straights Japan,’ really we should be comparing our performance with economies outside of the G7.

And while the government keeps talking about low inflation and high employment, others say, yes but why is our productivity so low?

Employment in the UK is at near record levels, and while unemployment has been rising of late, there are so many more people at work these days that the UK’s GDP has continued to rise.

Others fear that with employment so high, the UK output gap - that’s the difference between out potential output and what we actually do produce - is so low, that there’s little scope for substantial growth in the years ahead.

The UK’s low level of productivity per worker is one of those great imponderables.

Why is it so much lower than productivity in that industrial relations crisis hot bed of discontent, protectionist France?

The latest report from the Economist Intelligence Unit might shed some light.

The EIU has the UK falling from fourth to seventh place in its league table of most attractive locations for foreign investment.

Philip Whyte, EIU’s senior economist for western Europe, said: “The attractiveness of the UK’s business environment is threatened by sizeable macroeconomic imbalances, an increasingly complex and burdensome tax system, weak productivity and a sub-standard transport infrastructure.”
Mind you, given that 82 countries make up the survey, seventh place still isn’t bad. Mr Whtye said the UK remains a “very attractive place” for investment.

So maybe we will need to look elsewhere for the paradox of our low productivity. If you are reading this newsletter this morning from the comfort of your desk, the reasons might not be obvious, but if you read it in the afternoon because that nasty traffic jam has made you run late all day - then maybe you have experienced first hand one of the core problems which we think impedes UK productivity.