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Is the UK’s productivity actually growing?

These figures were a rare gift for the government, which is struggling to assure business in the run-up to leaving the EU

In the midst of uncertainty related to Brexit, it appears that British workers’ productivity rose at a faster rate during the second half of last year than in any period since the financial crash of a decade before. These figures were a rare gift for the government, which is struggling to assure business in the run-up to leaving the EU.

Economic output as calculated per hour of work, also known as labour productivity, increased by 0.7 per cent in the three months leading up to December 2017. According to the Office for National Statistics, these figures marked two consecutive quarters of positive growth. Together, these quarters of improvement indicated the strongest growth rates seen for more than ten years – since the latter half of 2005.

In general, however, despite these encouraging figures, rates of worker productivity are still not matching increases that were seen before the financial crisis took place.

Rates of productivity have recovered to some extent following the financial crisis, but this may be due to reduced numbers of hours being worked rather than a boost in productivity from companies. Productivity rates are important, as they are considered to be a significant indicator of living standards rising.

A senior economic adviser said that the UK had a lot of ground to make up when it came to catching up on productivity. Slow growth in British workers’ efficiency has been a big part of holding back increases in wages and boosting national standards of living. Some of this slow growth has been attributed to the financial crisis and more low-skilled positions being created. Government ministers now want to take action to drive up productivity and efficiency by using industrial strategy.

The results from the last three months of 2017 were largely due to improvements in services such as hotels, restaurants and shops, which are not part of the finance sector. By contract, financial services acted as more of a retardant to growth, along with industry sectors such as utilities and agriculture.

The Office for National Statistics maintains that the effects of the financial crisis linger, as British worker productivity is still below what may have been achieved should the financial downturn not have intervened. Many countries in Europe and other developed economies are outpacing the UK when it comes to growth, and Britain‘s labour productivity is nearly 17 per cent behind the average for other G7 nations.

Another senior economist said that industry sectors such as hospitality and retail, which tend to pay low wages, exhibit a particularly lacklustre record in productivity. Raising productivity seen in sectors like these to the levels exhibited in countries such as the Netherlands, France and Germany could reduce up to a quarter of the gap in productivity with these nations. Raising wages for workers such as serving staff and baristas could be one way of achieving this.

In general, however, government ministers indicated that they were pleased with the figures, saying that they were extremely encouraging.

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