UK productivity jumps at fastest rate for six years

The productivity of British workers has increased at the fastest rate in more than six years, handing the government a rare boost in correcting one of the biggest problems facing the UK economy.

Labour productivity, or the rate of growth in economic output per hour worked, grew by 0.9% in the three months to September 2017, the Office for National Statistics said. Economists said the jump came thanks to stronger growth in factory output, weaker jobs growth and the UK economy generating broadly the same amount of output for fewer hours worked.

Philip Shaw, chief economist at City bank Investec, said falling numbers of people entering the workforce and fewer hours worked was also a key reason for the gains. When fewer people work fewer hours but economic output holds steady, efficiency levels naturally rise, he said.

“I’d take one quarter’s numbers with a pinch of salt. It’s not at all bad news but difficult to embrace as a big change just yet in what is a disappointing history since crisis,” he added.

Nonetheless, the third quarter increase was the largest seen since the second quarter of 2011. But while the growth rate was in line with the overall rate for 2017 estimated by the Office for Budget Responsibility, the government’s official economic forecaster, the reading is still well below the pre-financial crisis trend rate for the UK of about 2% a year.

Sluggish growth in the efficiency of workers in Britain, held back in part since the financial crisis by the creation of low-skilled jobs, was one of the main reasons for the sharp downgrade in economic growth unveiled by the chancellor at the budget in the autumn. It has also been a key factor in holding down wages across the economy.

Compounded by fears over further potential weakness as Britain leaves the EU, ministers have placed boosting productivity levels among their top priorities, with additional investments in technology, infrastructure and training as part of the government’s industrial strategy.

The increase in productivity was fuelled by improved efficiency in the services sector, which is Britain’s dominant industry, and has typically been a laggard in terms of improving the amount of economic output per hour worked. There was also an increase in manufacturing output in the third quarter, as the UK’s factories benefit from an upswing in global economic growth and the weak pound buoying demand for British goods among foreign buyers.

The growth in productivity levels will be encouraging for ministers. Previous UK economic downturns have typically seen productivity fall, before subsequently bouncing back to the previous trend rate of growth. This has not been the case in the years since the 2008 financial crisis.

The Office for National Statistics said productivity in the third quarter was 16.6% below its pre-downturn trend, and would have been 19.8% higher had it bounced back to its previous growth rate.

The ONS deputy chief economist, Richard Heys, said: “While this stronger growth is welcome, it is set against a decade of weak productivity growth. Ten years after the peak of labour productivity, output per hour worked is just 1% higher – a slowdown which is without parallel since official records began.”

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