Productivity Measurement Analysis series – UK, Q3 2023 by Professor Raquel Ortega-Argilés with comments by Bart van Ark, Managing Director of The Productivity Institute
General Summary and Main Figures
On the 21st of November, the Office for National Statistics (ONS) released its flash estimate of UK productivity for the third quarter of 2023 (July-September). This estimate was based on the first quarterly gross domestic product (GDP) estimates and labour market statistics. Unfortunately, the preliminary results show a decline in productivity growth for Q3 2023 compared to the previous quarter (Q2) and the same period in 2022.
In particular, UK productivity per hour worked appears to be below the same quarter a year ago (-0.3) and quarter-on-quarter (-0.2), as is the UK output per worker growth (-0.1 quarter-on-year and -0.2 quarter-on-quarter).
| Quarter-on-year ago comparison (Q3 2022) | Quarter-on-quarter comparison (Q2 2023) | Pre-COVID-19 comparison (2019 average) | |
| Output per hour worked | -0.3% | -0.2% | 2.5% |
| Output per worker | -0.1% | -0.2% | 1.6% |
Source: ONS data, based on the 21 November 2023 release.
Insights into the Q3 2023 Productivity Release
In its latest release, the Office for National Statistics (ONS) has highlighted the challenge of declining response rates in its household and labour force surveys. This trend is not unique to the ONS, as other comparable national statistical institutes have also reported similar issues in recent years. As a result of poor quality, the Labor Force Survey (LFS) estimates had to be suspended. The flash estimates were based on an adjusted employment calculation,[1] being able only to report whole economy estimates per output per worker and output per hour worked. Therefore, these are preliminary estimates and are subject to revision.
In the absence of LFS data, the Office for National Statistics (ONS) has used four methodologies to estimate the UK’s output per hour worked, including (1) carrying forward average hours from Q2, (2) or from Q3 in 2022, (3) using average hours from Time-Use survey data to calculate a growth rate to LFS average hours for Q2 by applying seasonality and interpolation to intervening periods; and (4) using growth projections in LFS average hours from the same quarter in 2022. As indicated in the ONS release, these provide a relatively narrow range of average hours, and a relatively stable measure in the short term. The most robust method was to carry forward average hours.
Discussion
The issue of poor productivity performance has been a topic of discussion for several months and years. The Financial Times reports that productivity in the UK has remained almost unchanged since the financial crisis. Although other countries have also experienced a similar stagnation in productivity figures, the situation in the UK has been especially problematic. Among many different theories of how to improve productivity in the UK, many tend to indicate that unlocking investment across the country, improving labour market supply and a public sector reform will potentially invigorate the performance of the country.
Our Managing Director at The Productivity Institute, Professor Bart van Ark, comments about the poor productivity performance illustrated in this new flash estimate in The Guardian:
“Another poor quarterly performance for productivity reinforces our view that Britain is in urgent need of a national agenda to double annual productivity over the next 10 years. We anticipate growth is likely to stall for 2023 on the whole. A combination of the pandemic plus already weak productivity in the decade preceding it has seen the UK stuck in a growth rut of around 0.5% a year on average. The recent downward revision by the Office for National Statistics of productivity growth in the public sector from 0.7% to 0.3% per year over the past decade is adding to the problems on our plate. If the country’s productivity performance doesn’t improve, we predict UK GDP growth would drop to less than 1% a year on average over the next decade. This would fall far short of what’s required to bolster businesses and the government’s revenues, which will be needed to invest in living standards and accelerating performance in the private and public sectors.”
[1] The adjusted LFS estimates for employment in the Labour market November 2023 and the Labour market October 2023 release.
