UK productivity falls for second consecutive quarter

Labour productivity in Britain fell in the final three months of 2018 compared to a year earlier, continuing the country’s decade-long productivity slump, it was revealed today.

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For 2018 as a whole, labour productivity grew by just 0.5 per cent, well below the annual two per cent average rate seen before the 2008 financial crisis, the Office for National Statistics (ONS) said today.

The fall of 0.1 per cent in 2018's fourth quarter compared to a year earlier was the second consecutive quarterly drop, and meant that it had taken Britain 10 years to increase productivity two per cent, which historically took only a year, the ONS said.

Labour costs grew by 3.1 per cent in 2018’s fourth quarter compared to a year earlier, its highest rate since 2013, as wages grew faster than productivity.

The manufacturing sector acted as a drag on the statistics, with output per hour worked falling 1.1 per cent in the fourth quarter of 2018 compared to a year earlier.

Services, on the other hand, increased by 0.4 per cent compared to the same period a year ago.

ONS deputy chief economist, Richard Heys, said: “Our latest figures show a continuation of a decade of weak growth, often referred to as the productivity puzzle, with labour productivity growth lower over the last decade than at any time in the 20th century.”

“This affects both the public and private sectors, although one bright spot is healthcare, with more planned procedures taking place than usual through the winter, improving productivity across public services compared with the previous quarter.”

Multi-factor productivity (MFP), a key measure which takes into account developments in technology and changes in the labour market, was estimated by the ONS to have decreased by 0.6 per cent in the final quarter of 2018 year-on-year.

In the fourth quarter multi-factor productivity remained below its 2018 level, ONS figures showed. Before the financial crisis this measure of productivity had an annual growth rate of one per cent.

Tony Danker, chief executive of Be the Business, a campaign centred around UK productivity, said: “We need to reverse this trend or risk being decidedly uncompetitive when we exit the EU.”

He said: “We constantly focus on either the leaders or laggards of our economy. But we forget the majority of businesses in the middle, which have the greatest scope for improvement. We can and should do more to engage these businesses that are the most willing and capable of becoming significantly more competitive.”

Labour economist at the London School of Economics (LSE), Professor Guy Michaels, said: “While productivity figures can be volatile, the recent decline dampens hopes that UK productivity was finally beginning to recover after a torrid decade.”

He added: “The fall in productivity may have been due in part to the recent declines in business investment, which in turn may owe to the growth slowdown in Europe and to Brexit uncertainty.”

Howard Archer, chief economic advisor to the EY Item Club, said it was “probable that many companies took on labour rather than committing to costly investment, given the highly uncertain economic and political outlook”, thereby limiting the productivity growth available through the use of technology.

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“Many of the new jobs that have been created are in less-skilled, low-paid sectors where productivity is limited,” he added.