UK productivity growth hit 10-year high in the second half of 2017, show official figures

The increase was largely driven by a fall in the number of hours worked

UK productivity rose to a 10 year high based on a fall in hours worked last year (Getty)

UK productivity rose 0.7 per cent in the final three months of 2017, and with the third quarter figure revised up to 1 per cent, together they represent the strongest growth since the second half of 2005, according to the Office for National Statistics (ONS).

The ONS said the period between October and December last year was “the second consecutive quarter in which productivity growth has exceeded the pre-downturn average of 0.5 per cent per quarter”.

However, productivity was calculated on an output per hour basis, and so the increase was “largely driven by a fall in average hours worked”, the ONS added.

Revised estimates of labour productivity of the G7 show the UK continues to lag behind other major economies – UK labour productivity was around 16.3 per cent below the average for the other G7 economies in 2016.

“This is a second successive quarter of strong productivity growth, although much of it comes from a fall in average hours worked. A weak start to the year, however, means annual growth was only 1 per cent, half the historic average rate,” said ONS deputy chief economist Richard Heys.

“The new analysis published this quarter throw fresh light on the UK’s continuing productivity puzzle, such as the impact of business management practices and the differences between regions.”

Howard Archer, chief economic adviser to EY’s ITEM Club, said: “At face value, it looks highly encouraging that the fourth quarter of 2017 saw a second successive quarter of much-needed, appreciable improvement in UK productivity.

“However, it is notable that the sharp improvement in productivity in the second half of 2017 came amid a surprising, marked drop in hours worked over both the third and fourth quarters.

“Nevertheless, the extent of the pick-up in productivity over the second half of 2017 fuels our belief that there is scope for UK businesses to use their workforce more efficiently in the future, thereby lifting productivity.”

Mr Archer added: “Pressure for UK companies to get more out of their workers will likely come from recruitment difficulties in some sectors and a gradual trending up in pay growth.

“Companies are likely to increasingly prioritise productivity-enhancing measures, and there is likely to be a growing incentive to undertake investment aimed at saving labour.”