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Productivity fell by 0.4% during the first three months of the year

UK productivity slips in early 2018 – official data

WT Desk

Britain’s productivity went backwards during the first three months of the year, thanks partly to the “Beast from the East” cold snap, according to official figures published this morning, according to Sky News.

The Office for National Statistics said labour productivity fell by 0.4% during the quarter, reflecting continued strong growth in employment, combined with weaker growth in economic output.

GDP growth during the three months rose by just 0.2%, half the rate of growth seen in the final quarter of 2017, due mainly to the ferocious snowstorms Britain experienced in March.

Economists, politicians and business leaders attach huge importance to productivity because rises in productivity ultimately drive increases in living standards. Today’s figures confirm the UK’s poor record, relative to other leading economies such as the US, France and Germany, over recent years.

The ONS said the drop in productivity was the first fall in output per hour since the April-to-June quarter last year.

On a year-on-year comparison, output per hour was up 0.9% on the same three months last year, but the ONS said this remained “noticeably below” the long-term trend before the financial crisis – when productivity growth averaged nearly 2% a year.

Howard Archer, chief economic advisor to the EY ITEM Club, said there had been a “clear relapse” in UK productivity during the first three months of the year after the “much-needed improvement” during the second half of 2017.

He said that, while some of the relapse could be put down to the slowdown in growth caused by the severe weather, there had been a significant rebound in the number of hours worked during the period. He said it suggested the sharp improvement in productivity during late 2017 might have overstated the underlying improvement.

He added: “The relapse in productivity during the first quarter of 2018 after the rebound in the second half of 2017 is particularly disappointing as there needs to be sustained improvement to ease concerns over the UK’s overall poor productivity record since the deep 2008/09 recession.

“The UK has a lot of catching up to do on the productivity front. Indeed, the ONS reported that productivity during [the first three months of 2018], as measured by output per hour, was 17.5% below its pre-downturn trend.”

Dr Archer said there were a number of explanations for the UK’s poor productivity record since the financial crisis.

He said these included the fact that a lot of the jobs created since the crisis – that have contributed to record levels of employment – were in less-skilled, low-paid sectors where productivity was limited. He said it could also reflect the changing composition of the UK economy, with workers moving from productive sectors, such as mining, to less productive ones like food and catering.

He said under-investment could also have played a part, with an inability to access capital hitting innovation and investment by smaller companies.

Separately, the ONS also published new research that it said proved companies that import and export were “significantly more” productive than those operating only domestically.

Philip Wales, head of productivity for the ONS, said businesses doing trade in goods were around 70% more productive on average than businesses that did not in 2016. He said this trade was also very concentrated, with the 50 largest exporters accounting for around 38% of UK exports.

Mr Wales said that productivity varied by market, with business that trade with non-EU countries being more productive than those trading with the EU, which in turn were more productive than non-trading businesses.

He added: “These results are consistent with the UK’s membership of the EU’s single market and lower barriers to trade in goods having helped lower-productivity businesses to access these markets, while on average it takes a more productive business to trade successfully with non-EU nations.”

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