Rachel Reeves’s plans for growth have been dealt a huge blow as productivity slumped to its lowest level since the 1970s. Productivity is the amount the country produces for each hour of work, has fallen steadily throughout the 2010s, with the fall off accelerating in the 2020s.

The report by the Resolution Foundation found that the fall is “almost unprecedented”, with only the period around the 2008 financial crisis having seen similar declines in the last 50 years. The foundation found that GDP per head has fallen by 0.5% between 2019 and 2024, representing the worst drop since the 1970s, with the exception of the financial crisis. The findings highlight the difficulties facing Reeves’s mission for growth in the midst of increased cost of borrowing, war in Europe and a looming global trade war.

Simon Pittaway, from the Resolution Foundation, said: “Britain’s already dire productivity record in the 2010s has got even worse during the turbulent 2020s.

“The recent slump is the worst since the financial crisis and explains why living standards are struggling to grow.”

The trend is common amongst the entire G7 with the exception of the United States which has performed better thanks to “a continued boom in oil and gas extraction.”

The report used payroll data and a short-term Office for National Statistics survey which measured the number of jobs in the UK to shape its findings.

The Resolution Foundation urged the government to make reversing the “malaise” a top priority.

It said: “In some areas, such as planning reform and protecting public investment, the Government has already taken welcome steps.

“But there are a few areas of focus that aren’t currently receiving the attention they should. The tax system could be tweaked to be more supportive of investment and dynamism.

“Accounting for the post-pandemic productivity divergence between Britain and America 4 Resolution Foundation investment, reducing distortions created by non-residential stamp duty and the VAT registration threshold, and shifting tax incentives from small businesses to high-growth new firms are all worth careful consideration.”

It suggested that boosting trade could also go some way to delivering a reversal of fortunes.

Across the G7, only Italy was found to have performed worse than the UK, in terms of productivity since the 2010s.

The think tank warned: “Britain has the unenviable record of having both falling productivity and the G7’s biggest drop in working-age employment since before the pandemic.”