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UK productivity suffers worst contraction for a year

Economists warned there was more to be done to lift output to pre-crash levels.

Productivity relapsed in the first quarter of the year, with economists warning that there is still work to do if the UK hopes to solve its “productivity puzzle”.

Figures from the Office for National Statistics (ONS) showed productivity fell 0.4% in the three months to the end of March, as compared with the prior quarter, the first contraction for a year.

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(PA Graphics)

The ONS said the fall was due to strength in employment growth combined with weaker growth in output.

Productivity was hit in both the services and manufacturing sectors, falling by 0.2% and 1.7% respectively.

The ONS warned that productivity remained “noticeably below” the 2% growth rate observed ahead of the 2008 financial crisis.

After two quarters of growth, the first quarter’s dip in output per hour is a big disappointment and a timely reminder that there’s much work yet to be done Tej Parikh, Institute of Directors

This so-called “productivity puzzle” is holding back wage increases and restricting the UK’s overall economic growth, economists said.

Howard Archer, chief economist at EY ITEM Club, said the slowdown was partly related to the Beast from the East, which battered the UK earlier in the year.

Tej Parikh, senior economist at the Institute of Directors, said: “The UK’s productivity crisis isn’t going to disappear any time soon.

“After two quarters of growth, the first quarter’s dip in output per hour is a big disappointment and a timely reminder that there’s much work yet to be done.

“Whilst we’ve seen a continued pick-up in employment, output growth is subdued. We’re hiring more people than ever, yet each worker is unable to produce much more.

“This means businesses cannot offer inflation-beating wages and our long-term economic growth potential remains constrained.”

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