The private sector must be driven by the entrepreneurial spirit

Professor Joe Nellis is the Chief Economic Advisor to MHA. With strong wage growth and high unemployment in the UK, Joe explores how the entrepreneurial spirit can help the private sector boost the UK ecomony.

Although unemployment remains at a three and a half year high of 4.4%, the overall picture is relatively stable and at historically low levels.

Despite the well-cited growing pressures on businesses in recent months, a tight labour market means that we are not expecting any significant rise in unemployment in the coming months.

Strong wage growth — average earnings have risen by 5.9% — will continue in the coming months, accelerated by the rise in the National Living Wage from April. Combined with an increase in employer NICs, this presents a very real challenge for business.

With increased employer costs on the horizon, how do businesses intend on navigating this challenge in the context of a tight labour market?

With labour shortages making widespread redundancies unlikely, businesses are being forced to find another method for offsetting increased costs if they are to maintain their current levels of profit.

The government will be hoping that this brings the private sector to refocus on a challenge that has dogged the UK economy for decades — productivity.

Entrepreneurs and business owners are often innovative people. Given a scenario where expenditure is growing and the pressure remains constant to maintain decent profitability, employers will have to find ways to get more from their money, whether this be through new ideas, new ways of working, or expanding into new markets.

If the private sector can react creatively and effectively, that could help to close the productivity gap between the UK and other advanced economies that has been a drag on the UK economy for too long.