UK productivity falls below pre-crisis level

The productivity of UK workers has dropped back to its lowest level since before the financial crisis, according to official figures.

Announcing news of the first quarterly fall in productivity since the end of 2015, the Office for National Statistics (ONS) said hourly output fell 0.5 per cent in the first three months of this year.

At the end of 2016, productivity returned to the level seen before the downturn, overturning years of decline which has weighed on wages.

But it has now slipped back again and is 0.4 per cent below the peak recorded at the end of 2007, according to the ONS.

ONS head of productivity Philip Wales said: “UK labour productivity growth has struggled since the 2008 economic downturn, and the fall in the first quarter of 2017 brings to an end a recent run of quarters of positive growth.”

Experts said the data could hint at a risk that prolonged uncertainty and concerns over the UK’s economic outlook could end up weighing down on business investment and productivity.

Howard Archer, Chief Economic Advisor to the EY ITEM Club, said: “The UK’s “productivity puzzle” is a source of much debate and analysis. Part of the UK’s recent poor labour productivity performance has been that low wage growth has increased the attractiveness of employment for companies. This was clearly a major factor causing employment to hold up well during the downturn and since then has picked up markedly.

“It may currently be the case that employment is being lifted by a number of UK companies taking on workers or retaining staff due to concerns over labour shortages in some sectors and reports of fewer EU workers coming to the UK since last June’s Brexit vote.

“However, there are a number of factors that may have hurt productivity on a more lasting basis. Many of the new jobs that have been created are in less-skilled, lower-paid sectors where productivity is limited.

“The economy’s past prolonged weakness and financial sector problems may have hurt productivity through previous under-investment and an inefficient allocation of resources. In addition, there has been concern about the impact of so-called “zombie” companies. Not only are these companies generally less productive, but there is concern that they might be preventing credit and resources from being reallocated to newer companies and backing new products and processes.

“There is a risk that prolonged uncertainty and concerns over the UK’s economic outlook could end up weighing down on business investment and productivity. Difficult Brexit negotiations could increase this risk. It could also be compounded if levels of foreign direct investment are impacted, diluting any beneficial spill-over of skills and knowledge.”