Economy on the up ‘but productivity a worry’

ECONOMIC dynamism and city devolution in the North as well as a decisive outcome of the general election is a cause for optimism for one the UK’s leading economists.

The head of the investment office of UBS Wealth Management UK Bill O’Neill, visiting Manchester in the wake of the election, said there was widespread optimism among other analyists too.

However, O’Neill expressed concernsover the current lack of economic productivity, which may yet become a drag on performance

“In the North, there is economic dynamism,” he said. “And there is a sense that the economic recovery is becoming much more balanced (across the regions outside the South East).

“If you look at business confidence now, the improvement is fairly evenly spread. Employment growth seems to be on the up – from a weaker base we are continuing to see momentum build.

“There is a lot of interest in devolution of power, particularly under city governments. There is positive feeling about that.”

O’Neill said there was ample scope for further expansion of the economy over the next two to three years, but that one issue which was not playing a big part in the recovery was productivity – an issue highlighed as a major concern on Wednesday by Mark Carney, Governor of the Bank of England.

“It remains a mystery why productivity in this country has been so weak,” he said.

“It must improve because we do have significant deficits.. We have to address productivity and issues like skills gaps. These are structural issues that could weaken growth beyond the next three years and it’s an important issue for the new government.”

He said investment could play a very big part in resolving the problem.

“It seems to me e that you do need to see a continued commitment in terms of investment spending. If investment comes, productivity will follow and then there will be wage growth.”

On a more upbeat note, O’Neill said that household income was also a cause for optimism for business.

“There’s going to be a substantial improvement in household finances, thanks to low oil and utility prices and pickup in employment and wages,” he said. “People have substantially more money in their pocket – in real terms we’re talking about 4%.

“More people in the household are going to work, but it’s difficult to say whether the cost of living crisis intensified, but it has eased somewhat.”