The UK's productivity puzzle deepens as the labour market thrives while output lags

Courtney Goldsmith
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Job Growth, Unemployment Rate Both Drop In September
The productivity puzzle deepens (Source: Getty)

Britain's labour market is booming, but record levels of unemployment have struggled to boost UK output, according to a report published today.

The UK’s unemployment rate is the lowest its been since 1975, but business output has remained stagnant at 95.1, very near the point of contraction at 95.0, according to accountants and business advisers BDO’s latest business trends report.

This highlights the UK's long-standing productivity problem, BDO said.

Read more: A helping hand in solving the UK’s ‘productivity puzzle’

Hiring intentions grew steadily for the last ten months, rising 0.1 point from July to 104.6, indicating expected growth in new jobs over the next few months should be well above the long-term trend of 100. The strength of labour market demand is also at a near record high with 768,000 advertised vacancies from May to July.

"Although new employment in the UK has increasingly consisted of proper, full-time jobs, these seem often to be low skilled and low paid," said Peter Hemington, partner at BDO.

"We’ve seen a decade of anxiety post the GFC [global financial crisis] and, no doubt, we have many years to come of Brexit related uncertainty. In this context, one can understand that employers have been happier to create low skilled jobs, which can quickly and easily be removed, rather than invest in expensive equipment, which might stand idle for years if demand forecasts prove over optimistic.

"The problem is that capital investment creates opportunities for higher paid employment, which the UK is missing out on."

Hemington added that the approach shown in a leaked Home Office report of a harder line on unskilled migration to the UK would cause the labour market to "run out of road pretty quickly".

"The resulting labour market squeeze will require some very difficult policy decisions to be taken," he said.

Read more: Productivity slips for the second quarter in a row

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