The watchdog published its forecast evaluation report yesterday, which shows that the economy experienced weaker growth than previously predicted.
The OBR said: “Our March 2017 forecast assumed that trend productivity growth would rise slowly to reach 1.8% in 2021.
“Actual productivity growth averaged 2.1% a year in the pre-crisis period, but has averaged just 0.2% over the past five years.”
The report noted that there “will be some recovery from the very weak productivity performance of recent years” over the next five years.
But it added: “Continued disappointing outturns, together with the likelihood that heightened uncertainty will continue to weigh on investment, means that we anticipate significantly reducing our assumption for potential productivity growth”.
Its forecast for the next five years will be included in its fiscal and economic outlook released next month.
Real GDP growth in the period up to mid-2017 was weaker than predicted in both the OBR’s March 2015 and March 2016 forecasts, but nominal GDP growth – which is the more important driver of the public finances – fell short of its March 2015 forecast by a smaller margin.
Although, it actually exceeded the March 2016 forecast.
The study found that relative to its March 2015 forecast, borrowing was £10.9bn higher than expected.
Spending was higher than expected but not offset by higher-than expected receipts, the OBR found.
This spending was concluded to be largely the consequence of significant increases in departmental spending announced after the 2015 General Election.
Researchers found that relative to the March 2016 forecast, borrowing was £2.8bn lower than expected.
These were boosted by stronger profits and higher employment, which more than offset the effect of weak average earnings growth.
The OBR said: “Other things being equal a downward revision to prospective productivity growth would weaken the medium-term outlook for the public finances, while a lower sustainable rate of unemployment and more hours worked would strengthen it.”
According to the OBR the downward revision to productivity growth is likely to have the largest quantitative impact.
A spokesperson for the Treasury said: “Productivity has been a longstanding challenge for the UK economy, which is why we are focused on boosting our performance to deliver higher living standards and build an economy that works for everyone.
“This includes £23bn of investment in infrastructure, research and housing, and an ambitious industrial strategy to boost productivity across every region.”
The OBR announcement came as the International Monetary Fund downgraded its growth estimates for the UK.
The IMF said the UK was a “notable exception” to an improving global economic outlook, as it confirmed a cut to its forecast for UK growth and said the long-term negative effects of Brexit were coming to the fore.
In its World Economic Outlook, the IMF cut its prediction for the UK’s growth for this year by 0.3%, to 1.7%, which is below the average growth rate in other advanced economies, which is predicted to be 2.2%.
This is forecast to drop to 1.5% growth in 2018, compared to 2% growth in other advanced economies.
The IMF said: “The medium-term growth outlook (of the UK) is highly uncertain and will depend in part on the new economic relationship with the EU and the extent of the increase in barriers to trade, migration, and cross-border financial activity.”
Liberal Democrat leader, Vince Cable, commented: “This worrying fall in future productivity growth will reduce the chancellor's leeway to boost spending in the Autumn Budget, including on vital infrastructure and public services.”
John McDonnell, Labour’s shadow chancellor, said: “We need no more proof that [The Torys’] austerity approach has failed to boost living standards or improve the long-term potential of the UK economy.”
