Labour productivity growth in the UK showed no signs last year of returning to its past strength, raising cost pressures on businesses as wage increases accelerated, according to figures from the Office for National Statistics.
Output per hour worked in the UK was just 0.2 per cent higher in the third quarter of 2018 compared with the same period a year earlier, the slowest rate of productivity growth in two years, the data showed.
Despite strong growth in output in the third quarter when good weather helped boost consumer spending, productivity in the UK fell quarter on quarter owing to a jump in hours worked.
Commenting on the figures, ONS head of productivity Katherine Kent said: “Growth in labour productivity remained very weak in the third quarter, at around a tenth of its historic trend rate.”
Britain’s productivity growth has consistently disappointed since the financial crisis in 2008, a problem that has been dubbed the “productivity puzzle” owing to the surfeit of explanations for the slowdown.
The lacklustre growth in productivity meant that real unit labour costs, often used as an indicator of inflationary pressure, grew at an annual pace of 2.8 per cent in the third quarter. This was the fourth consecutive quarter of unit labour costs growing by more than 2 per cent.
One part of the economy bucked the disappointing trend, according to the ONS. National Health Service productivity for the financial year ending in 2017 grew by 3 per cent in England, more than treble the rate achieved across the wider UK economy in 2016-17. Health service productivity in England also outpaced that achieved in health services elsewhere in the UK, with a combined UK health service figure of 2.5 per cent in 2016.
Simon Stevens, chief executive of NHS England, who this week launched a long-term plan for spending an additional £20.5bn a year by 2023-24, despite Treasury concerns that the blueprint would not deliver value for money, said the data “provide reassurance that NHS funding is and will continue to be used to maximum effect”.
The Bank of England’s monetary policy committee has warned that the lack of productivity growth since the financial crisis means Britain’s companies have little room to absorb higher wage costs and may pass these higher costs on to consumers through inflation.
Policymakers at the central bank have said that without productivity growth they may need to raise interest rates to damp growth and prevent the economy from overheating.
Some economists have warned that as uncertainty over the terms of the UK’s exit from the EU is reducing business investment, especially among the most internationally connected and productive companies, the country is unlikely to see an improvement in productivity soon.
“Today’s dismal data illustrates the magnitude of the challenge we face in raising our productivity,” said Tej Parikh, senior economist at the Institute of Directors.
“The government’s industrial strategy has been reined back by Brexit negotiations since it was announced in 2017,” he said, “but this year the business community need to see tangible progress, otherwise we risk eating into our future competitiveness at the expense of politics today.”
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