The UK's productivity gap with other advanced economies has widened, with output per hour worked now 15% below the average for the rest of the G7, according to new figures from the Office for National Statistics (ONS). The data, released on Friday, underscores the scale of the challenge facing Chancellor Rachel Reeves as she seeks to boost economic growth.
Productivity Stagnation Continues
The ONS reported that productivity, measured as output per hour, fell by 0.2% in the second quarter of 2026 compared with the previous three months. This follows a 0.1% decline in the first quarter, marking two consecutive quarters of falling productivity. On an annual basis, productivity was flat, with no growth in the year to June.
Economists had expected a modest rebound, but the figures highlight persistent weakness in the UK's economic performance. The UK's productivity gap with France and Germany has also widened, with the UK now producing 18% less per hour than France and 20% less than Germany.
Reeves' Growth Ambitions Under Pressure
Chancellor Rachel Reeves has made closing the productivity gap a central pillar of her economic strategy, arguing that improving productivity is essential for raising living standards and funding public services. In her recent Budget, she announced a series of measures aimed at boosting investment and innovation, including changes to planning rules and increased funding for research and development.
However, the new data suggests that these policies have yet to have an impact. The ONS noted that the UK's productivity performance has been particularly weak in the services sector, which accounts for around 80% of the economy. Output per hour in services fell by 0.4% in the second quarter, while manufacturing productivity rose by 0.3%.
Expert Reaction and Policy Implications
Economists have expressed concern about the persistence of the productivity slowdown. "The UK has a long-standing productivity problem, and these figures show that it is not going away," said Sarah Coles, head of personal finance at Hargreaves Lansdown. "The Chancellor's growth agenda is the right one, but it will take time to deliver results."
The ONS also highlighted regional disparities, with London and the South East showing higher productivity levels than the rest of the country. The gap between the capital and other regions has widened over the past decade, raising questions about the effectiveness of the government's 'levelling up' agenda.
Responding to the data, a Treasury spokesperson said: "The Chancellor is committed to taking the difficult decisions needed to drive growth and improve productivity. We are investing in infrastructure, skills, and innovation to ensure that the UK is a world leader in the industries of the future."
Impact on Living Standards and Public Finances
The productivity stagnation has significant implications for living standards. The ONS estimates that if productivity had grown at the average rate of the rest of the G7 over the past decade, UK GDP would be around 15% higher, equivalent to an additional £4,000 per person per year.
For the public finances, weaker productivity growth means lower tax revenues and higher borrowing costs. The Office for Budget Responsibility has previously warned that the UK's productivity puzzle is a key risk to the government's fiscal plans. The Chancellor has set out a target of 2.5% annual growth in productivity, but the latest figures suggest that this target is far from being met.
As the government prepares for the autumn Budget, the productivity data will add to pressure on Reeves to deliver concrete measures that can reverse the trend. Business groups have called for a more ambitious industrial strategy, with a focus on digital adoption and investment in green technologies.
The next set of productivity figures is due in November, and will be closely watched by policymakers and markets alike.
