Sluggish productivity and inequalities slowing UK economic growth, warns OECD

Sluggish productivity across the UK as well as regional and gender disparities are slowing economic growth, a new report has found.

The UK economy has recovered to pre-pandemic levels but high energy prices and the rising cost of living are slowing growth, the Organisation for Economic Co-Operation and Development (OECD) said.

The UK faces a combination of rocketing energy costs, increasing global prices of goods and services, and economic uncertainty fuelled by the war in Ukraine.

Furthermore, the UK’s gross domestic product (GDP) will reach a standstill with completely flat growth in 2023, according to the latest forecast.

But improving “sluggish” productivity and reducing regional and gender disparities can help keep the economy’s recovery on track, the international organisation said.

OECD’s secretary-general Mathias Cormann said: “Like other economies around the world, the UK economy faces a number of headwinds, with pre-existing structural challenges magnified by the pandemic and Russia’s war of aggression against Ukraine.

“The key to stronger economic growth and better opportunities will be stronger growth in productivity.”

Despite the Government’s plans to “level up” the UK by improving productivity and living standards in regional areas, the OECD said poorer local areas are still missing out on much-needed funding.

And women’s skills are not being fully utilised in the labour market with three times more women working part-time than men and mothers more likely than fathers to reduce working hours after having children, it added.

The knock-on effect of gender earnings gaps means productivity growth is slower than it could be, the report concluded.

The OECD said there should be greater funding to reduce the cost of good-quality childcare and the paternity pay cap should be increased to help close gender gaps in the workplace.

It also urged the Government’s “levelling up” plans to be better streamlined, well targeted, and to focus on improving productivity in lagging regions.

Economists at the body stressed that the Government should stick to its investment plans, amid a Conservative leadership battle which has seen both hopeful candidates for prime minister launch plans for significant tax breaks across UK industry.