What’s the truth behind the UK’s surprise productivity jump?

 

The Autumn Budget revealed a downgrade in productivity growth forecasts, but the latest figures show the country’s productivity has grown. What do the mixed messages mean?

Labour productivity in the UK increased by 0.9% in the third quarter of 2017, the fastest rate of growth seen in more than six years, according to new data from the Office for National Statistics (ONS). The measure looks at the amount produced by a worker in the UK per hour in order to assess workforce efficiency.

It has come as a surprise to many, after predictions across the industry, and from the Budget announcement in November, had foreseen a more sluggish growth due to factors such as recovery from the financial crisis, as well as uncertainty triggered by the upcoming Brexit.

What’s the truth?

Rather than output increasing, however, the rise is mainly attributed to a reduction in the number of hours worked and a reduced number of people entering the workforce, meaning that efficiency levels went up. Meanwhile, the services sector – the most dominant industry – saw improvements, and manufacturing output increased.

But the rise is still far from pre-crisis levels of around 2% a year.

ONS deputy chief economist Richard Hey 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.”

The government has placed productivity towards the top of its agenda of late, making extra investments in technology, infrastructure and training as it rolls out its big industrial strategy, particularly as Britain moves closer towards leaving the European Union.

On the up-side, despite the slowdown in the growth of employment, the UK economy overall grew by 0.4% in the three months to September 2017, a slight uptick on the previous quarter’s 0.3% rise, giving ministers more reason to be cautiously optimistic.

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What’s the truth behind the UK’s surprise productivity jump?

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