Productivity falls:

CHANCELLOR PHILIP Hammond will have limited room for manoeuvre in his Budget after new figures pointed to falling productivity levels.

Productivity fell by 0.1 per cent in the second quarter of the year but that average masked a 1.3 per cent fall in manufacturing.

The Government has declared its determination to tackling the UK’s longstanding productivity problem.

But the latest figures from the Office of National Statistics revealed UK productivity was 15.1 per cent below the average for the rest of the G7 group of countries last year, only slightly improved on the 15.5 per cent recorded in 2015.

ONS head of productivity Philip Wales said: “Labour productivity fell back slightly in the second quarter as growth in the number of hours worked outstripped GDP growth.

“UK labour productivity continued to lag behind our international partners in 2016.”

There is a close link between productivity levels, economic growth and government tax receipts and the latest figures suggest Mr Hammond will have little room to loosen the purse strings.

The constraints on the Chancellor are expected to grow further following reports that the Office for Budget Responsibility is to downgrade its economic forecasts.

The Government has come under pressure to relax its approach to the public finances when Mr Hammond delivers his Budget next month after Labour’s success in the General Election on the back of promises to end austerity.

Promises have already been made to be more flexible over public-sector wages.

Commitments have also been made to increase money to build homes and help housebuyers, invest in rail in the North and freeze student fees.

Rebecca Long-Bailey, Labour’s Shadow Business Secretary, said: “Our capacity to raise long-run living standards seems to be going backwards.

“Productivity growth has been the basis of rises in living standards over the last 200 years.

“Yet for each hour of work we put in today, we get less out than we did ten years ago. Further, productivity was 15.1 per cent below the average for the rest of the G7 in 2016.

“This country needs a radical and transformative industrial strategy.”

Anti-Brexit campaigners seized on the productivity figures as evidence of the damage being done to the economy by the prospect of Britain leaving the European Union.

Labour MP Wes Streeting, speaking for the Open Britain campaign, said: “It’s clear the confusion caused by Brexit is having a real impact on our economy.

“Investment is stalling, as the Chancellor has said, and firms are faced with damaging uncertainty over our future trading relationship with the EU and their ability to recruit European workers.

“This is bound to have a negative impact on productivity, as the OBR said last year.

“With every move this incompetent and divided Government makes, businesses and investors lose confidence in our economy. That will continue the decline in productivity and make us all worse off.”

Liberal Democrat leader Sir Vince Cable said: “It is deeply worrying that for the second quarter in a row, workers are producing less, not more, per hour.

“Without productivity improvements, we will struggle to compete on the world stage and generate some much-needed wage growth.”