Institute of Directors: Politicians are looking at the UK's productivity problems in the wrong way

Lauren Fedor
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The Bank of England looks closely at productivity when considering upping interest rates (Source: Getty)

The government is looking at the so-called “productivity puzzle” in the wrong way, the Institute of Directors (IoD) argues in a new report out today.

The business group says that ministers should have a bigger focus on promoting business “agility”, allowing firms to respond quickly and efficiently to various demands.

IoD chief economist James Sproule, who authored the report, said that the government “has to bear in mind how our economy is changing, how people choose to work, and what future economic success will look like”.

“We need to ask if too close a focus on productivity numbers without considering wider factors could pose a long-term risk to the economy and prosperity,” he said, adding that focusing on single metrics such as how to increase output per hour could be “dangerous”.

Read more: Skills gap widens and threatens UK productivity

“We should shift the debate onto ‘agility’, since firms who can respond fast, efficiently, and effectively to consumer demands will shape the economy of the future,” Sproule said.

The report calls for the government to invest more in STEM subject education, commit to protecting flexible labour market practices, and put in a place regulations that “support entrepreneurialism and innovation”.

The Treasury published its productivity plan in July, following the emergency summer budget.

Last week, figures from the Office for National Statistics (ONS) showed that productivity across the British economy rose at its fastest rate in four years in the second quarter. Productivity is one of a number of critical indicators that the Bank of England considers when deciding whether to increase interest rates.

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