The UK boosted its productivity potential last year, but Brexit could push it back down again

 
Hayley Kirton
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The UK rose from 14th place to 13th in 2016 (Source: Getty)

The UK's comparative potential for productivity grew last year, but a bad Brexit deal could see it slip back down the rankings, research released today has found.

The country crept up from 14th to 13th place in KPMG's Variables for Sustained Growth (VSG) Index, which rates the productivity potential in different countries. The final VSG score takes into account a number of factors, including education, quality of infrastructure, levels of corruption and macroeconomic stability.

In particular, the study praised the UK for its ability to rake in foreign direct investment.

Read more: BoE chief economist on Brexit: Won't someone think of financial services?

However, the report noted: "A change in policy direction can have a significant impact on a country's VSG performance. Brexit, for instance, could prompt the UK's VSG score to fall as a consequence of lower trade and reduced skill levels due to a decline in EU migration."

Yael Selfin, head of macroeconomics at KPMG and author of the report, added:

The world experienced a number of surprises in 2016 signalling that globalisation as we knew it may no longer work. The subsequent impact on the world economy from less trade and reduced flows of people and ideas as a consequence of this could be significant.

The result of the EU referendum means the UK is one of the countries likely to see the most change as part of this shift. The strength of our public institutions such as our judiciary independence and business rights will help the UK retain and attract business.

But as we leave the EU, the country needs to work harder than ever to demonstrate our doors remain open to the world.

Read more: Six things we know about the UK's new ambassador to the EU

The researchers were more undecided on what Donald Trump's stint in the White House would mean for the productivity potential of the United States, which ranked below the UK in 24th place on 2016's index.

"The effects of a new president and new policies could go either way – aiding or damaging its VSG score," the report read.

The top 10 in KPMG's Index was dominated by Western Europe, with Switzerland earning the top spot, followed by the Netherlands and Luxembourg.

Top 10 for productivity potential in 2016

1. Switzerland

2. Netherlands

3. Luxembourg

4. Hong Kong

5. Norway

6. Finland

7. Denmark

8. Sweden

9. Iceland

10. Singapore

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