Economy: Productivity 'Slump' Is Main Concern

Yes, it may just be a blip. Yes, the number will probably be revised. Yes, it’s probably going to be stronger, anyway, than in many other parts of the world.

There are plenty of ways one can attempt to dismiss the big fall in GDP today . But even so there’s no getting away from it: it represents a big blow.

First off, there’s the politics. From the Chancellor’s perspective, the timing is extremely unfortunate.

Most of the economic numbers released in the run-up to the election have been pretty positive: unemployment down to a new low, wages rising, inflation down at zero.

But the big number everyone pays most attention to is gross domestic product – the most comprehensive measure of how much income is being generated across the economy.

The fact that the number comes barely more than a week before the election makes it doubly significant.

Moreover, this slowdown was significantly greater than expected: growth of 0.3% in the first quarter is half the rate of the previous quarter and down from 0.9% a year ago.

In fact, it is the weakest growth rate since late 2012 – the darkest period of George Osborne’s tenure, when everyone was worried about a double-dip recession and the IMF was warning that he was “playing with fire."

Finally, despite all the Chancellor’s pledges to rebalance the economy away from household spending and the services sector, and back towards sectors which make and export products, these (admittedly rough, preliminary) numbers suggest that Britain remains as imbalanced as ever.

But while the number is certainly politically awkward, is it economically significant?

Well, one should always be wary of reading too much into one number – particularly given how frequently GDP figures are revised.

However, were this estimate to stand, it does raise some worrying questions about the recovery.

For one thing, it suggests many of the independent estimates of UK economic activity might have been overcooking things.

It suggests the UK may have been more affected by the latest Greek crisis and by wider weakness in Europe and China.

Most worryingly, this weak growth follows figures showing that the rate at which people are working is still rising rapidly.

In other words, the amount of economic output generated per hour people work is falling.

Or, to give it its economic name, productivity looks like it might be falling, not rising.

And it is this phenomenon – slumping productivity – that ought to concern us most about these latest GDP figures.

The only way Britain can really recover from the recent slump, can generate enough income to leave us all feeling better off, can start, in turn, to pay off the public finances, is through an increase in productivity.

The fact that it may well be dropping again, rather than recovering, could be a big economic problem.