Britain’s dismal track record on improving worker productivity since the financial crisis continued in the first three months of the year, amid mounting concern Brexit will further damage the efficiency growth required for boosting wages.
Economic output per hour of work dropped in the UK by 0.4% in the first quarter after a rise of 0.6% in the final quarter of 2017, according to the latest snapshot from the Office for National Statistics.
The rate of growth for labour productivity in the first quarter was up 0.9% compared with the same period a year ago, about half the average rate notched up across Britain in the years before the 2008 financial crisis. Prior to the downturn the average rate of growth stood at 2%.
The figures will disappoint the chancellor, Philip Hammond, and the business secretary, Greg Clark, who consider a boost to productivity as one of their top targets in government. Economists believe increasing worker efficiency could help to lift pay growth out of the doldrums as companies would be able to generate greater profits with the same resources – enabling them to pay higher wages.
The ONS said the latest fall in productivity came after strong employment growth in the UK earlier this year. When more people contribute to the economy without generating greater levels of economic output, productivity falls. Economists argue Britain has created hundreds of thousands of low-paid jobs since the crisis began a decade ago, rather than opting to invest in technology and skills to boost the number of higher-paid jobs.
Tej Parikh, a senior economist at the Institute of Directors, said: “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 that our long-term economic growth potential remains constrained.”
There are fears Brexit could make matters worse, as companies put their investment decisions on hold amid the political uncertainty – with recent warnings coming from firms such as BMW and Airbus. Higher levels of business investment tend to lift the rate of productivity growth, because spending on machinery and technology can boost the efficiency of workers.
Howard Archer, the chief economic adviser to the EY Item Club, said it was highly possible several companies would take on staff rather than commit to investment, given the highly uncertain economic and political outlook.
“There is a risk that extended uncertainty and concerns over the UK’s economic outlook could end up weighing down on business investment and damaging productivity. Prolonged difficult Brexit negotiations could increase this risk.”
