Low productivity poses risk to Britain’s recovery

The National Institute of Economic and Social Research (NIESR) expects the economy to grow 2.5% in 2014, raising its forecast from 2% in November; however lagging productivity poses a risk for the country’s medium-term outlook.

NIESR then expects growth to ease to 2.1% in 2015, a slightly sharper slowdown than most other economists expect.

Britain posted 1.9% growth in 2013, it’s fastest since the financial crisis.  The rebound has though relied heavily on consumer spending, raising doubts over how long it can last as wage growth fails to keep pace with inflation.

While NIESR expects consumer spending to remain the key driver of growth over the next two years, underpinned by a buoyant housing market, it also predicts that “robust growth” in business investment will support the recovery.

But low productivity would continue to pose a challenge for the economic outlook as it limits wage growth, it said.

“Our forecast remains one of a gradual improvement in productivity, but continued stagnation poses a downside risk to the UK’s medium-term prospects,” NIESR said.