‘Something needs to change’: Firms to tackle productivity growth problems with AI investment
Businesses are looking to ramp up investment in new technologies in 2024 in a bid to raise the UK’s sluggish rate of productivity growth.
A new survey from the Productivity Institute, shared exclusively with Morning Wire, shows that 60 per cent of business leaders will make investments to improve productivity in the next 12 months.
The survey shows that new technologies, such as AI, are a particular focus for businesses while management skills were also identified as priority.
“It’s promising to see that business decision-makers recognise the importance of investing time and resources in boosting productivity to ultimately drive economic growth,” Bart van Ark, Managing Director of The Productivity Institute said.
A separate survey from Lloyds also showed that improving productivity is at the top of the list for a third of London’s businesses
“Staff training and new technology look to be the areas where the capital’s firms are spying opportunities to boost productivity,” Paul Evans, regional director for London at Lloyds Bank, said.
The UK has suffered from more or less stagnant productivity growth since the financial crisis.
Average annual growth in labour productivity, measured by gross value added per hour, was around two per cent in the decade before the financial crisis but has averaged less than 0.5 per cent since.
Although many advanced economies have suffered from a similar fate, the UK has been hit worse than most. In 2022 output per hour worked was almost 15 percent below the average for France, Germany and the US.
The Productivity Institute has called for the UK to establish an institution focused specifically on productivity to help navigate “deep-rooted economic challenges” to raising the rate of productivity.
Economists pinpoint productivity growth as a key crucial underpinning long-term living standards. Higher productivity should lift workers’ incomes without fuelling inflation and expand the supply potential of the economy.
A recent report from the Resolution Foundation also drew attention to the UK’s poor productivity performance, arguing it was the principle cause of the stagnation in living standards.
According to the think tank, sluggish productivity since the financial crisis has cost the average worker £10,700 in lost pay growth.
Investment is crucial for delivering sustained increases in productivity. The UK has the lowest level of investment as a proportion of GDP in the G7.
“Something needs to change, and businesses will be at the forefront of driving this change,” van Ark said.