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Driving productivity and growth in the UK economy

The United Kingdom’s output per capita ranked last among G7 countries in the mid-1990s. The chief causes were low levels of competitive intensity, product market and land use regulations, and, in some cases, managerial practices.

Objectives and Approach

The purpose of MGI’s UK study is to shed light on the extent of and reasons for the UK’s productivity and output gap relative to today’s leading economies. Focusing on microeconomic case studies in six sectors and benchmarking UK performance relative to the best performing economies of the world, we look for the keep barriers to productivity improvements.

Aggregate Analysis

The UK has the lowest output per capita compared to the US, France, and Germany. MGI arrived at this conclusion based on looking at the amount of labor employed compared to the productivity of that labor. The principle driver of poor UK economic performance is low labor productivity, which accounts for about two-thirds of the shortfall.

Automotive Sector

Automotive is one of the largest manufacturing sectors both in the UK and globally. On average, labor productivity in the automotive sector is half that in Japan and 70 percent of that in the US. Some UK plants, however, are true world-class organizations.

Food Processing Sector

The food processing sector is the UK’s largest manufacturing sector but it ranks below France’s and Germany’s in terms of productivity. The limited number of strong brands, low value-added product category mix, and EU policies restricting competitive intensity all contribute to poor performance.

Food Retailing Sector

Driven by “space” productivity, UK has achieved best in class total factor productivity. However, labor productivity is 25 percent below France and 10 percent below the US.

Hotels Sector

Poor productivity in the UK’s hotel sector is primarily driven by the age of its hotel stock – the result of high construction costs and lack of domestic demand – and the low penetration of large chains.

Software Sector

The UK software and services sector performances much worse than the US. Lack of scale of successful companies is one of the key factors driven by weak business demand.

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