UK productivity sees further fall

The productivity of UK workers has fallen for the second quarter in a row, official figures indicate.

Hourly output fell 0.1% in the April-to-June period, the Office for National Statistics (ONS) said.

This follows a 0.5% decline in the first three months of the year.

Economists have warned that the UK's productivity continues to lag behind its major trading partners such as the US, France and Germany.

The ONS said the fall represented a continuation of the UK's "productivity puzzle", referring to the relative stagnation of labour productivity since the financial crisis.

We used to take it for granted that we would each get better off as the economy grew. As companies and the government invested in better technology and skills, each worker could produce more goods or services per hour, bringing in more revenue to their employers - and as a result, each worker could be paid more per hour. Those improvements in productivity were for most of the last 200 years the motor of economic growth, so regular they could be taken for granted.

In the past decade, that engine of improved prosperity has all but broken down. The latest productivity numbers show that the amount (output per hour) each worker produces shrank by 0.1%. Modest perhaps, but add that to all the other falls in productivity over recent years and we each produce no more than we did at the end of 2007.

But hang on, don't we keep reporting that the economy has grown? Indeed we do - with record levels of employment and the lowest unemployment rate in 45 years. How do you reconcile that?

Here's the answer. An economy is merely people and their economic activity (buying, selling, working, saving etc). So you can grow it without any improvements in productivity, by simply adding people to the workforce, be they EU migrant workers or pensioners choosing not to retire yet.

And that is what our economy has been doing - without improving the amount each worker produces. If you want to know why average wages haven't improved much in the same period, flat productivity is a big part of the answer.

The ONS pointed to differences between the manufacturing and services sectors.

Services output per hour grew by 0.2%, with output growth outpacing growth in hours worked.

In contrast, the ONS said, manufacturing output fell while hours grew, so labour productivity in manufacturing declined by 1.3% during the quarter.

On an annual basis, covering the 12 months after the UK voted to leave the EU, hourly output fell 0.3% from June 2016 to June 2017.

The last time the ONS recorded a fall in annual productivity of that magnitude was in the year to September 2013.

The UK has seen a steady economic recovery since the financial crisis, but it has been helped by longer hours and more people working.

Productivity has failed to grow consistently, raising concerns for businesses and policymakers.

"Productivity has been a long-term challenge, which is why we must invest now to step up our performance," said a Treasury spokesperson.

"We have announced £23bn for infrastructure, research and housing, while also reforming technical education so that our economy works for everyone."

Shadow business secretary Rebecca Long-Bailey said: "Our capacity to raise long run living standards seems to be going backwards.

"This country needs a radical and transformative industrial strategy. The only party that can deliver this is Labour."