Productivity growth likely to remain muted

The recent pick-up in productivity growth is at least partly due to tighter conditions in the labour market, with the dwindling pool of the unemployed forcing firms to invest in additional productivity-enhancing capital equipment instead. Given the high proportion of firms now reporting that jobs are hard to fill, we might normally expect both business investment and productivity growth to accelerate. However, capacity utilisation rates are still slightly depressed, so the boost to investment could be more modest than in previous cycles. But even using existing equipment more intensively should boost productivity. Nevertheless, it remains to be seen whether this will be enough for productivity growth to break out of its decade long slump.