Tuesday 8 October 2019 11:12 am

UK productivity falls at fastest rate in five years

UK productivity fell at the quickest pace in five years in the second quarter, official figures showed today, marking a worsening of Britain’s decade-long productivity crisis.

Read more: Brexit prep has cut UK productivity, says Bank of England

Output per hour worked dropped 0.5 per cent in the three months from April to June compared to a year earlier, the Office for National Statistics (ONS) said.

UK productivity is around 20 per cent lower than it would have been if it had continued at pre-financial crisis levels. Economists argue over the causes of the crisis, which has been labelled the “productivity puzzle”. 

The trend has been compounded by Brexit uncertainty. Business investment – a key driver of productivity growth – has fallen in 2019 and flatlined since the 2016 referendum. Productivity is the main driver of long-term growth as it makes societies wealthier.

Richard Heys, deputy chief economist at the ONS, said: “Labour productivity has continued the weak trajectory it has followed over the last year.” 

“Both manufacturing and services saw a fall on this time last year, with only a couple of other relatively small sectors contributing positively. This confirms the broad base of the UK’s productivity challenges.”

Productivity in manufacturing and services fell by 1.9 per cent 0.8 per cent and respectively compared with the same quarter in the previous year, the ONS said The falls in these sectors wiped out gains in non-manufacturing production and construction.

Tej Parikh, chief economist at the Institute of Directors, said: “Unsure of what’s around the corner, businesses’ investment in the new equipment and technology that drives up their performance has been stifled.” 

“Many companies are also trimming their investment pipelines for the year ahead to build up a cash cushion in anticipation of challenging economic conditions ahead.”

Read more: Urgent action needed to tackle stagnating productivity, top economists warn

“Policymakers have been distracted from putting together the various pieces of the productivity puzzle, ranging from the skills agenda to infrastructure improvements.”

(Image credit: Getty)