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UK Productivity growth continues upward trend: Largely driven by fall in average hours

Productivity growth in the UK has exceeded its pre-downturn average for the second quarter in a row, new figures show.    Output per hour grew by 0.7% in October-December 2017, after 1% growth in July-September.

It is the first time two consecutive quarters have been above 0.5% since 2005 – the average rate of growth before the economic crash of 2008.

ECONOMY Productivity

Shortly before his Spring Statement of this year, Chancellor Philip Hammond said the country had seen “the first signs that productivity growth — the key to higher wages — may be increasing”, adding that he was “confident there is light at the end of the tunnel”.

But the good news is expected to be short-lived.

The Office for National Statistics (ONS) said the rise was largely driven by a fall in average hours, with the Office for Budget Responsibility (OBR) saying in March that previous trends suggest the increase in productivity will be “soon reversed”.

In its “economic and fiscal outlook” report, presented to Parliament, the OBR said: “The biggest surprise in the economic data released since November is that productivity growth – measured as output per hour – has been much stronger than expected.

“But that reflects a much weaker path for average hours worked, rather than stronger output or weaker employment growth.

“The fall in average hours over the second half of 2017 is the largest since mid-2011 and second-largest since the financial crisis.

“But in 2011 the fall in hours and associated pick-up in productivity growth proved to be erratic and were soon reversed. We assume for now that the same will be true on this occasion.”

ECONOMY Productivity

The rise in productivity rate being a consequence of employees working fewer hours rather than producing more can be seen in the output per worker and output per job figures – both rose by just 0.1% between the third and fourth quarters.

It suggests that Britain’s workers are producing around the same amount of labour, but in shorter working hours.

When comparing the fourth quarter of 2017 to the same period the year before, output per hour worked has grown by 1%, falling short of the pre-downturn average of around 2% a year.