The UK's productivity crisis worsens as output stalls despite firms hiring more staff

Rebecca Smith
UK firms are hiring more staff but output is falling
UK firms are hiring more staff but output is falling (Source: Getty)

Poor productivity remains one of the UK's "biggest economic challenges" and it is deepening, according to BDO's latest business trends report.

Firms are continuing to hire more staff, but business output is struggling to pick up, according to the accountancy and business advisory firm.

It said the amount of output produced for each hour worked is likely to slow further, emphasising the UK's "alarmingly low" productivity levels.

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The BDO employment index indicating firms' employment intentions, is above the long-term trend and has risen 0.1 from February to 102, while employment has grown steadily for the past six months. The current unemployment rate of 4.7 per cent is at its lowest in over 40 years.

But BDO's output index reflecting how firms expect their order books to develop over the next three months has dropped to 95.9. BDO noted that was considerably below the long-term growth trend of 100 and moving closer to the point of contraction, marked as anything below 95.

BDO warned the figures reflect the "severe difficulty" the UK economy is facing when it comes to bolstering productivity, despite marginal increases announced by the Office for National Statistics in April.

Last week, the ONS found output per hour had risen by 0.4 per cent in the fourth quarter of 2016 to give a year-on-year growth rate of 1.2 per cent; both the fastest rates since the three months to June 2015. The pace of growth remained well below its average before the financial crisis though.

Peter Hemington, partner at BDO, warned that the measures set out by the chancellor in his Budget, such as investing in technical education and digital infrastructure, were "unlikely to be enough".

"Poor productivity performance is one of the UK’s biggest economic challenges," Hemington said. "The UK is a low investment economy with an education system that doesn’t always deliver the goods."

Successive governments should be applauded for the hard work done to improve education in England, which has shown real progress in recent years.

But technical education has not improved and there must be doubt as to whether this nettle is really being grasped.

As for investment, the government should have the courage to borrow more to invest in the nation’s increasingly threadbare and out of date infrastructure.

Read more: Beware comparing Brits' productivity unfavourably to that of the French

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