Productivity boost for UK's ailing economy

Research by the Centre for Economics and Business Research (CEBR) suggests that productivity, or output per worker, is set to accelerate in nine out of the 12 regions between now and 2015 compared with 1998-2008.

The biggest increase in productivity growth is forecast for Wales, rising from an annual rate of just 0.6 per cent to 1.5 per cent. Other regions where a substantial improvement is expected include Yorkshire and Humberside and the West Midlands.

Less significant rises are forecast for Scotland, where output growth is predicted to nudge up from an already robust 1.3 per cent to 1.4 per cent, Northern Ireland and the north-east of England.

Meanwhile, productivity growth in London is likely to be slower during the current recovery than between 1998-2008 as the financial services sector is less effective in driving the economy forward.

Economists argue that the overall boost to productivity means that costs can be spread better and should allow for services to be cheaper than they otherwise would be.

This, together with more profitable businesses, should allow growth to accelerate in later years.

News of an improved outlook for UK GDP could ease some of the pressure on Bank of England policymakers as they convene this week for their latest rate-setting meeting.

Members of the bank's monetary policy committee have been urged by business leaders to hold their nerve on interest rates, despite continued inflationary pressures in the UK economy.

While a hike in borrowing costs could help bring inflation down it may also threaten the economic recovery, which had been looking uncertain after GDP slumped by 0.5 per cent in the final quarter of 2010.

Owen James, one of the authors of today's "Regional Prospects" report and an economist at CEBR, said: "We still cannot make the outlook for those parts of the economy which depend heavily on public spending look good for the period from 2011-15.

"But hopefully this is a transitional period and the improvements in productivity growth that we expect will be the underpinnings of a better outlook for employment beyond 2015."Scott Corfe, co-author of the report, added: "One of the tough aspects of the public spending cuts is that they will hit employment harder in those parts of the economy more dependent on the public sector.

"But part of the silver lining is likely to be a faster rate of productivity growth - and it is productivity that underpins long-term economic performance.

"Also, it is likely to be easier for entrepreneurs in a region to grow their business now than in the 1980s when we last had high unemployment, because in those days entrepreneurs in regions that were transforming themselves mainly had to depend on local customers.

"Today with the internet, they do not have to depend on local customers to anything like the same extent"