London drags down UK productivity
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London was the main drag to UK productivity growth between 2019 and 2022, a trend that pushed the efficiency gap between the capital and the rest of the country to its lowest level on record.
Output per hour worked fell 2.7 per cent in London between 2019 and 2022, in contrast with a 2.5 per cent expansion across the UK over the four years, the Office for National Statistics said on Monday.
The decline left the capital 26.2 per cent more productive than the countrywide average, the smallest lead since comparable records began in 1998 and well below the 2007 peak of nearly 40 per cent.
The figures point to the impact of the Covid-19 pandemic on the engine of the UK economy as well as the spreading of productivity growth more evenly across the country.
“It is unlikely that the next government will preside over rising living standards in the UK without London firing again,” said Paul Swinney of the Centre for Cities think-tank.
UK productivity overall has largely stagnated since the financial crisis following decades of strong growth, a trend that has weighed on living standards and is known as Britain’s productivity puzzle.
Swinney said the trend for London “explains a large part of the UK’s wider productivity woes” as the capital led both the strong national growth seen before 2008 and its subsequent poor performance.
London is the UK’s largest and richest regional economy and a key source of revenues for public finances.
In the fiscal year to May 2023, Londoners paid £5,000 more in tax than they received in public spending, while Britons received £1,894 more than they put in the public coffers.
But recent revisions to GDP data showed the London economy underperformed the national average since 2019, in contrast with early estimates of higher growth in the capital.
London contracted more than the rest of the country during the pandemic, according to revised data, pointing to the hit from Covid-19 restrictions to activity and international travel.
Bart van Ark, managing director at the UK-based Productivity Institute, said London’s performance was “a concern and will need to be attended closely from the perspective of international competitiveness”.
But he added the narrowing gap between London and the rest of the country may suggest “the UK is finally beginning to move away from its one-engine model where only London and the South East are pulling the cart”.
ONS data showed that labour productivity since 2019 rose by 7.9 per cent in the North West and increased by 5.5 per cent in the South East.
The North West was 6.8 per cent less productive than the UK average in 2022, a smaller gap than the 11.3 per cent shortfall in 2019.
UK productivity figures are calculated using the ONS labour force survey, which has been affected by greater volatility since the pandemic because of a lower response rate.
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