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Drop in UK productivity is no surprise

07 Apr 2016

Commenting on the latest official productivity figures, released today, which show that output per hour worked fell by 1.2% in the fourth quarter of 2015, James Sproule, Chief Economist at the Institute of Directors, said:

“The drop in UK productivity is not welcome, but nor is it particularly surprising given the continued strong performance in employment growth. More jobs are clearly a good thing for the people who get them, but much of the increase in employment in 2015 came in areas like accommodation and food services, which add little to the productivity statistics*. The key thing is not too get too worried about one statistic:  there is no point in comparing ourselves to the pre-crisis productivity trend, which was a feature of a bubble about to pop.

“The rise in wages, outpacing productivity, in the final quarter of last year is likely to help to underpin the consumer-led portion of the economic recovery. However the introduction of the National Living Wage, raising pay for 1.8 million workers, will very likely result in continuing poor performance in productivity in 2016.

“We are facing a period of dynamic economic and social change, and businesses changing is critical to our being able to cope and thrive in this environment. The IoD believes we have to be careful that we are not equating efficiency with productivity. Agility, the ability to rapidly alter business practices, is critical to future success of the UK and is going to matter far more than simple productivity statistics in determining our prosperity.”

*Employment in accommodation and food services increased 4% last year, but the sector added only 0.2% to the productivity statistics.

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