UK productivity at unprecedented post-war low

1st April 2015


The lack of productivity in the UK workforce since 2007 is “unprecedented in the post-war period” official figures reveal.

The figures were bad news for the UK economy, as labour productivity in terms of output per hour fell back in the fourth quarter of 2014 after showing signs of improvement in the third quarter.

Howard Archer, chief UK and European economist at IHS Global Insight, explains that productivity currently remains limited compared to pre-crisis levels and the latest relapse will fuel concern that much of this has to do with structural factors.

He says that how productivity develops going forward will be a critical factor in how soon and how far the Bank of England raises interest rates.  If productivity has taken a significant lasting hit, it means that the economy has less potential to grow without generating inflationary pressures and that interest rates will need to rise at an earlier stage, Archer explains.

Archer says: “Despite the latest disappointing data, there are signs that UK companies now may be increasingly looking to lift productivity. ”

He adds:”Hopefully, recent decent business investment (up 7.5% in 2014) will have positive implications for future productivity growth. However, it was somewhat worrying that business investment suffered a relapse in the fourth quarter of 2014.

” The Office for National Statistics reported that output per hour worked fell back 0.2% quarter-on-quarter in the fourth quarter of 2014; this was particularly disappointing as a 0.5% quarter-on-quarter rise in the third quarter had lifted hopes that productivity was finally starting to improve.

“Overall output per hour was only up 0.3% year-on-year in the fourth quarter of 2014. Furthermore, the ONS reported that output per hour was slightly lower than in 2007, before the downturn. The ONS commented that ‘the absence of productivity growth in the seven years since 2007 is unprecedented in the post-war period.’”

Labour was keen to highlight the figures as evidence that Conservative economic policy is failing.

Chuka Umunna, Labour’s Shadow Business Secretary, says: “This is yet another illustration of an economy which simply isn’t working for working people.

“Under the Tories, we’ve seen the rise of a low-wage, low-skilled economy and insecure work as productivity has stagnated, with real wages down by an average of £1,600 a year. Britain is now ranked second bottom for productivity among the G7 economies.

“Labour’s  better plan will boost high-skilled, better paid jobs. We will raise the minimum wage and incentivise firms to pay a living wage, ensure every school leaver with the grades can access a high- quality apprenticeship and back small firms by cutting – then freezing – business rates. And we will ban exploitative zero-hours contracts which have become the norm for too many under the Tories.”

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