The government’s productivity blindspot is our economy’s biggest threat – and Boris Johnson has no real plan to fix it

With little mention in the Conservative manifesto and the endless pursuit of Brexit likely to dominate Westminster and Whitehall this year, the gloomsters are on track to be proved right

It may not have featured much in the general election campaign, but the economic outlook is likely to move to the top of politicians’ agendas by the end of this year.

Boris Johnson, the prime minister, has made the idea of reaching a sunlit economic upland a key plank of his Brexit agenda: once the UK escapes the “dead-hand” of the European Union, with one bound it will be free to exploit all sorts of economic opportunities this year.

Except that his friends in the City of London do not share that optimism. The most recent forecasts for economic growth this year compiled by the Treasury just a week after polling day show an average outlook for annual GDP growth of just 1.1 per cent, down from an expected 1.3 per cent in 2019.

That would appear to put the likes of HSBC, Citi and JP Morgan in Johnson’s much reviled camp of “doubters, gloomsters and doomsters”, whom he ridicules as having continually got Brexit wrong.

Of course, Britain will not achieve freedom with one leap and the reason for their pessimism undoubtedly lies in the failings that are embedded in the UK’s economic being.

The first is the UK’s weak negotiating position. When the UK leaves the EU on 31 January, it will move into an 11-month transition stage that means it will stay in the Customs Union and single market until the end of 2020. Until then it cannot sign new free trade agreements (FTAs) with non-EU countries.

But while Theresa May’s rejected deal looked at building a “trading relationship

on goods that is as close as possible”, Johnson’s deal aims only for an FTA.

The decision to set a 31 December deadline leaves little time to negotiate an FTA that could capture the close relationship the UK and EU have had for more than 40 years. In fact, the EU is unlikely to agree a collective negotiating position until early March, leaving just 10 months to negotiate.

An FTA will involve significant trade frictions if the UK does not subscribe to close regulatory alignment. The FTA may regulate goods trade, but many important elements of the UK’s dominant services sector will have to wait their turn.

This flows into the second obstacle to growth: uncertainty. The last three years have seen a lack of clarity over the path to Brexit deter businesses from investing in Britain. That is likely to continue as they wait to see whether Johnson can agree an FTA or instead allow the UK to crash out of the EU without a deal.

The third handicap for the economy is severe cuts in public spending imposed since 2010 that have taken a large chunk out of economic growth and put a strain on many public services.

The Conservatives have hailed an end to austerity, but outside health, their extra £13.8bn of spending will only be enough to reverse around a quarter of the cuts since 2010, according to the Institute for Fiscal Studies.

But the final and most worrying brake on growth is the endemic low level of growth in productivity – the amount the average worker produces in an hour. Since the global financial crisis hit, productivity has grown by just 0.3 per cent a year compared with 2 per cent a year before that.

Hetan Shah, the head of the Royal Statistical Society, chose it as its UK number of the decade, describing it as “the most important boring statistic you have never heard of”.

Why is it important? Because if productivity had grown in line with its historic trend, then output per hour would be 20 per cent higher, which would go a long way to raising the depressed level of wages and living standards.

But with productivity just mentioned twice in the Conservative manifesto and the endless pursuit of Brexit likely to dominate Westminster and Whitehall this year, the City’s gloomsters look on track to be proved right.

The pantomime season may be drawing to an end but for anyone wanting to know the reason why the economic uplands appear to be covered in a thick fog, the answer is: “It’s behind you”.