UK sees largest productivity boost since 2011

UK productivity saw its largest gain in almost six years in the third quarter of 2017, according to the Office for National Statistics.

UK sees largest productivity boost since 2011
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The ONS found Labour productivity on an output per hour basis grew 0.9% between the second and third quarter of 2017, the largest increase since Q2 2011.

This rise topped the previous post-global financial crisis peak in Q4 of 2016 by 0.3% and lifted productivity to 1% above its peak in Q4 2007 prior to the economic downturn.

The uptick in productivity was outpaced by growth in earnings and other labour costs, which climbed 1.3% in Q3, thanks to relatively weaker sterling. However, this was the most sluggish unit labour cost growth since the second quarter of 2015.

The ONS said that the increase “compares favourably with a long period of average productivity growth prior to the economic downturn” but noted that “trend productivity still remains lower” than pre-crisis times.

Over the last decade, the UK has been plagued by what economists have termed the “productivity puzzle”, in which output has failed to return to pre-crisis trends despite recent low levels of unemployment and the UK economic recovery.

From 2008 to the third quarter of 2017, productivity growth has been highest in the non-financial services jobs, followed by manufacturing and construction.

Post-financial crisis, the financial services industry has been one of the weakest contributors to labour output at -0.5 percentage points (ppt). But of all the sectors, non-manufacturing production, including jobs in agriculture, electricity, gas and water supply and mining, has suffered the most, registering at -1.7ppt.

Some speculate that rising productivity coupled with a pipeline of wage reforms in 2018, like the national pay rise, could push inflation over the edge this year, requiring hasty central bank intervention.

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