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– May 15th, 2024

Q1, 2024: UK labour productivity shows a moderate growth

Productivity Measurement Analysis series – UK, Q3 2023 by Professor Raquel Ortega-Argilés 

UK Labour Productivity Flash Estimates by ONS

The flash estimate for labour productivity utilises the most recent productivity data and the first quarterly estimates of gross value added (GVA) to give an initial glimpse into UK productivity for Quarter 1 (Jan to March) of 2024. Preliminary estimates based on the Labour Force Survey (LFS) show that labour productivity, measured as output per hour worked, increased by 0.1% in Q1, 2024 compared with the same quarter a year ago and by 0.8% when measured as output per worker.

General Commentary: Flash productivity estimate Q1 2024 release

On May 14 2024, ONS released a new productivity data release indicating that the UK’s productivity growth experienced a moderate rebound in its estimates of labour productivity.

Table 1: Flash estimates of Labour Productivity Growth Rates. UK, Quarter 1 (Jan to Mar) 2023 to Quarter 1 (Jan to Mar) 2024

  Quarter-on-year ago comparison
(Q1 2023)
Quarter-on-quarter comparison
(Q4 2024)
Pre-Covid-19 comparison
(2019 average)
Output per hour worked growth rates 0.1% -0.3% 1.7%
Output per worker growth rates 0.8% 1.2% 1.5%

Source: ONS data, based on the 14 May 2024, productivity flash estimate and overview release.

UK’s labour productivity, measured as output per hour worked, has shown an increase of 0.1% compared to the same quarter in 2023 and is now 1.7% higher than before the COVID-19 pandemic (2019 average level). The initial calculations for UK output per worker during Q1, 2024 show a rebound of 0.8% when compared to the same period in 2023, due to increases in GVA (0.2%) and a drop in workers (-0.6%). In Q1, 2024, the UK saw a 1.2% increase in output per worker compared to the previous quarter, which improved from the results obtained in the previous quarter (-0.6%).

When analysing the industrial contribution to productivity growth in output per hour worked for the first quarter of 2024 compared to the same quarter in the previous year, it was found that the manufacturing industry had the largest positive impact on productivity growth. Conversely, services had a negative impact on annual productivity growth. In addition, ONS argue that the whole-economy growth in productivity was affected by the between-industry reallocation effect. This means that economic activity (hours worked) shifted primarily from industries with higher productivity to those with low productivity. On the other hand, the limited decline in hours worked in low-productivity industries such as agriculture has dampened aggregate labour productivity growth.

It would also be interesting to see how the within-industry developments have accounted for this aggregate labour productivity growth. As indicated by the Center for Economic and Policy Research (CEPR), in recent decades, within-industry developments have accounted for most of aggregate labour productivity growth with ICT-producing sectors as well as ICT adopters (some services) showing increasing productivity gains in many developed countries.

General discussion: The macroeconomic environment

On May 10 2024, the ONS released the first quarterly GDP estimate for January to March. GDP grew by 0.6% in Q1 2024 after falls in the previous two quarters, marking a rebound from a mild recession in the last semester of 2023 (0.1% in Q3 and 0.3% in Q4). This quarterly growth was the strongest since the end of 2021. These figures may indicate that businesses were more optimistic about the year ahead.

The press explains these growth figures as the surge in activity in some service sectors (in particular in retail, public transport and storage and private healthcare) and production industries such as car manufacturing. This increase can be attributed to the recent wage uplift, which has outpaced inflation. As a result, this has potentially alleviated pressure on consumers, leading to a more stable economic environment, with resilience seen across retail stores, pubs and restaurants. Nevertheless, the construction sector remained in decline.

The Bank of England has forecasted that due to a lack of momentum in the economy, the Gross Domestic Product (GDP) will only grow by 0.5% in the current year. The Bank has decided to keep the interest rates unchanged at 5.25%. However, it has hinted that it may start cutting them from June.

Productivity estimates are also a reflection of what has happened in the UK labour market, shown in the UK latest labour market official figures. Employment fell by 178,000 between the final three months of 2023 and the first three months of 2024, while further evidence of a cooling labour market came from a drop in job vacancies which fell by 26,000 to 898,000 in the three months to April. Unemployment rose by 166,000 in the same period, pushing up the jobless rate from 3.8% to 4.3%. The UK economic inactivity rate for people aged 10 to 64 years was estimated at 22.1% in January to March 2024, above the estimates of a year ago and the last quarter of 2023, and still above pre-pandemic rates.

The broad array of evidence currently emerging indicates that the economic volatility seen after the pandemic and Russian invasion of Ukraine has largely faded, but that growth remains constrained in the face of high interest rates.