UK Productivity In Further Decline

Loosely said, productivity is a measure of national output divided by the number of workers in productive employment. It can also be thought of as the amount of work done by an employee per hour. Consequently, productivity is closely bound to economic output and the profitability of the companies engaging the workers. Theoretically, if productivity rises, employers should be able to increase the wages of their staff which will in turn boost consumer spending (the converse is also true).

UK productivity has declined to a level seen reversal to pre-crisis levels (late 2007) according to the Office for National Statistics. ONS states that hourly output saw a 0.5% decline in Q1 and has now slipped back to stand at 0.4% below the level it was at before the Global Financial Crisis took hold. This will be a bitter blow since productivity had climbed back to pre-crisis levels at the end of 2016 giving some hope of a hike in (non-public sector!) wages, that optimism would now seem to have been extinguished.

With the UK in the process of economic self-harm known as Brexit, but still currently a member of the world’s largest trading bloc, UK productivity lags that of German and French workers.

Commenting on the data, ONS’s Philip Wales, head of productivity said: “UK labour productivity growth has struggled since the 2008 economic downturn, and the fall in the first quarter of 2017 brings to an end a recent run of quarters of positive growth.” The current quarterly data brings to an end a series of increases in UK productivity which had started in Q4 2015.

The president of the Federation for Small Businesses, Mike Cherry, had the following reaction to the data: “Productivity is being stifled by chronic underinvestment, exacerbated by current unprecedented uncertainty and reflected in sluggish wage growth.”

It has been pointed out that the increased number of people in work drags down the productivity figure since UK output is divided by the number generating it, but this is at least partially specious. It does suggest that increased numbers of people may be engaged in activities which contribute only marginally to GDP. ONS pointed out that there was a wide disparity between productivity in the City of London (the financial centre) and the rest of the UK with a ratio of seven to one in productivity between the City and the least productive area in the UK (2015 data). This highlights the risks to the nation’s economy if the financial sector is badly hit by Brexit.