Barret Kupelian, Chief Economist

Transcript

The new government here in the UK is obsessed with economic growth, and has said it wants to achieve the highest sustained growth in the G7.

This is sensible.

A growing economic pie is good for businesses, because it allows them to expand their activities and hire more workers, it means more tax revenues for the government, which is good news for me and you who use public services, and it also means it can fund the infrastructure of the future.

However, our analysis in the UK outlook shows that, on current trajectory, the UK will probably not meet this objective. Whenever economists think about future economic growth, they think of them in terms of three levers - capital, labour and productivity growth.

One immediate issue to address is the 800,000 people of working age who have become economically inactive since the start of the pandemic, with the oldest and youngest workers being especially affected.

Our survey data reveals that long-term health conditions are a big culprit, with growing mental health conditions amongst the young people being of particular concern.

If the government wants to boost economic growth rates, and, in the absence of immigration, they will need to address the underlying causes of inactivity.

Another issue is chronic underinvestment which has stifled growth in the UK economy for years.

Labour have promised a new industrial strategy and getting this in place quickly will be crucial to unlocking long-term growth.

Critical to this is a focus on enhancing the skills and knowledge of the UK population, greater investment in infrastructure and increased trade openness.

Our recently released Framework for Growth report estimates the economic gain from a well-executed industrial strategy to be over £900bn by 2035.

And finally, productivity.

There is no magic pill to actually increase the productivity growth rate. For me, it's a combination of a methodically applied industrial strategy of devolving decisions to local bodies, and also applying new technologies to business practices, including sharing the knowledge between the superstar firms and those that are technologically lagging.

So as a result, increasing productivity growth rate is all about working smarter, rather than harder.