Productivity slumps amidst unprecedented uncertainty

08 Apr 2019

The latest Office for National Statistics (ONS) statistics* show that labour productivity, measured by output per hour, fell by 0.1 per cent year-on-year in the fourth quarter of 2018, the second consecutive quarter decrease.

Industry experts attribute the political and economic uncertainty on the economy as the main contributing factor to this slump.

Richard Heys, Deputy Chief Economist for ONS, says: "Our latest figures show a continuation of a decade of weak growth, often referred to as the 'productivity puzzle', with labor productivity growth lower over the last decade than at any time in the 20th century. It has taken the UK a decade to deliver 2 per cent growth, which historically was achieved in a single year."

While the public and private sectors, one positive area is healthcare, with more planned procedures taking place than usual through the winter, improving productivity across public services compared with the previous quarter. However, there was a significant 1.1 per cent decrease for manufacturing.

Federation of Small Businesses (FSB) National Chairman Mike Cherry, says that SMEs are not only having to contend with unprecedented uncertainty, with a raft of new cost increases and reporting requirements: "Rising labour costs have continued with the introduction of Making Tax Digital, fresh hikes to business rates and a further increase in auto-enrolment pension contributions.

“In order to improve productivity, key areas that must be addressed include management and leadership, broadband connectivity and the scourge of late payments.

“All this amid the ongoing uncertainty over the future of the UK’s relationship with the EU which shows no sign of reaching a resolution.

“Productivity will only continue to decline unless the Government can do more to step up and back British businesses.”

The outlook for 2019 is very much dependent on the outcome of Brexit. If the UK is to leave the European Union (EU) with a deal, or remain in the EU, this would likely boost investment and consumer confidence. However, leaving with no deal could cause a profound shock to the British economy. An extension to Article 50 would prolong uncertainty and thus continue to hamper investment.

This is a key week for Brexit and therefore, indeed, for the UK economy and British business as a whole.

* ONS - Productivity economic commentary: October to December 2018

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