Is poor investment affecting productivity (via ONS)

Every month, the Office of National Statistics (ONS) produce a monthly Economic Review which provides a useful overview of the economic stories from the data it has put out in the previous month.

The January edition out today focuses on productivity and the nature of the recovery. Essentially it paints a picture that says the UK’s productivity growth has been stagnant (which Chris Giles in the FT agrees is the most important economic chart in the UK at the moment.

Chart1 – Output per Hour, constant prices, seasonally adjusted

Output per hour

The Economic Review also says that it’s consumption that’s driving the recovery, rather than investment (gross fixed capital formation or GFCF).

Chart 2 – Gross Fixed Capital Formation and Household Final Consumption Expenditure, standardised units in multiple downturns, constant price, seasonally adjusted

Spending & investment

Yet if you combine the two charts, you get a more compelling story – it’s the lack of investment that may be responsible for the UK’s poor productivity performance in recent:

Chart 3 – Productivity and investment (as above)

Productivity & Investment

I recognise issues around correlation and causation, but the ONS data does suggest that investment is likely the key to some of the UK’s economic problems.