Productivity growth in the UK economy reached a 12-year high in the second half of 2017, according to official figures.

UK productivity moves forward

The Office for National Statistics (ONS) said economic output per hour worked in the final quarter of the year had risen 0.7 per cent which, coming on the heels of a one per cent rise in the third quarter, meant that the final six months of the year were the best for productivity growth since the second half of 2005.Productivity in the UK is one of the lowest in the G7, with the output in low-paid jobs proving a particular problem, lagging between 20-30 per cent behind equivalent roles in the US, Germany and France, according to a joint report from the National Institute of Economic and Social Research (NIESR) and the Joseph Rowntree Foundation.The report said agriculture, arts, entertainment and recreation were among the poorest performing sectors, with poor management blamed for many of the failings.“Increasing levels of skill and rates of capital investment in low-wage sectors can play a part in closing the UK’s relative productivity gap with other countries,” said NIESR researcher John Forth. “However, the UK’s weakness in these sectors lies at least as much in how skills and technologies are put to use, and so close attention must also be given to management practices and the organisation of work.”

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Is there a trend forming?

Reacting to the latest ONS data, Tej Parikh, senior economist at the Institute of Directors, said, “While productivity growth has been near its strongest since the recession in recent quarters, it’s still too early to begin heralding this as the start of a new trend.“For starters, a drop-off in hours worked played a key role in pushing up the numbers, while all-important output growth has continued to be modest. So, policymakers need to keep their foot on the gas. Business leaders would encourage the government to push forward with consultations and with allocating funding from the Industrial Strategy, to help kick-start the economic engine.“Solving the productivity puzzle will require a comprehensive approach. Directors want to see improvements in the nation’s physical and digital infrastructure, to help boost idea diffusion and connectivity between regions.“But macro investments need to be matched by direct support for businesses, particularly the ‘long tail’ of low productivity SMEs. These firms need greater assistance to absorb new technologies and to upskill their workers and management in order to deliver efficiency enhancing changes to their organisations.”

Potential for UK productivity growth

Howard Archer, chief economic adviser to EY’s ITEM Club, added, “At face value, it looks highly encouraging that the fourth quarter of 2017 saw a second successive quarter of much-needed, appreciable improvement in UK productivity.“However, it is notable that the sharp improvement in productivity in the second half of 2017 came amid a surprising, marked drop in hours worked over both the third and fourth quarters.“Nevertheless, the extent of the pick-up in productivity over the second half of 2017 fuels our belief that there is scope for UK businesses to use their workforce more efficiently in the future, thereby lifting productivity.“Pressure for UK companies to get more out of their workers will likely come from recruitment difficulties in some sectors and a gradual trending up in pay growth.“Companies are likely to increasingly prioritise productivity-enhancing measures and there is likely to be a growing incentive to undertake investment aimed at saving labour.”

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Read more about the future of UK industry in the Winter issue of our magazine 

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