Some time ago, I reported on the differences between recent UK and US experience in terms of changes in productivity levels. A similar theme has emerged in recent work by Abigail Hughes and Jumana Saleheen. These authors identify some interesting sectoral patterns. Prior to the financial crisis, productivity growth in the services sector in the UK appeared to be strong; the crisis had an obvious adverse impact on (particularly financial) services, and many of the pre-crisis gains were subsequently lost. There has, since, been a modest recovery in productivity in this sector, however.

Meanwhile, productivity in the energy sector - where North Sea reserves are rapidly being depleted - has declined. In this context, driving the UK towards sustainable productivity growth is likely to be a challenge.

Investment in physical and human capital, and policies to foster innovation are conventional cures for productivity malaise. Business investment requires access to finance and also requires confidence that demand will grow into the future.

Continued uncertainty about the macroeconomic outlook - and especially about the outcome of the Euro crisis - is, in the absence of a quick resolution, likely to continue to frustrate hopes of a speedy return to healthy productivity growth.

Abigail Hughes, & Jumana Saleheen (2012). UK labour productivity since the onset of the crisis - an international and historical perspective Bank of England Quarterly Bulletin, 138-146

The latest results from my neural network forecasting model, based on industrial production (K222) in the UK are presented below - the data are outturn rates of growth up to June of this year (in blue) and forecasts for the following 24 months (in red).

It is clear that the medium term outlook remains grim. While the growth rate has by now pretty much bottomed out, these data suggest that the return to a positive rate of growth will not come until late next year.

Of course, such a simple model cannot take into account the plethora of uncertainties surrounding the Euro crisis and its ramifications for economic conditions in our major export markets. The risks there, however, remain predominantly on the downside.

The public finance data for July were disappointing; a prolonged recession is likely to mean dampened government revenues and increased government spending on welfare, so, while output struggles to recover, the outlook for deficit reduction is poor.