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– Aug 17th, 2023

Q2, 2023: UK labour productivity rebounds

Productivity Measurement Analysis series – UK, Q2 2023 by Professor Raquel Ortega-Argilés

The Office for National Statistics (ONS)  flash estimate for labour productivity utilizes 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 2 (April to June) of 2023. Fluctuations throughout the year can be heavily volatile and unpredictable. Therefore, since productivity is a fundamental aspect of the economy, it is advisable to examine long-term trends in productivity growth (prior to the COVID-19 pandemic period). Growth in UK productivity was the second lowest among the Group of Seven industrialised nations between 2009 and 2019.

General Commentary: Flash estimate Q2 2023 release

On August 15 2023, a new productivity data release from ONS revealed that the UK’s productivity growth experienced a rebound in its estimates of labour productivity.

Quarter-on-year ago comparison (Q2 2022) Quarter-on-quarter comparison (Q1 2023) Pre-COVID-19 comparison (2019 average)
Output per hour worked 0.1% 0.7% 1.4%
Output per worker 0.0% 0.4% 0.4%


Source: ONS data, based on the 15 August 2023 release.

UK’s labour productivity, measured as productivity per hour worked, has shown an increase of 0.1% compared to the same quarter in 2022 and 0.7% compared to the first quarter in 2023 and is now 1.4% higher than before the COVID-19 pandemic. The latest reading was driven by a 0.2% quarterly increase in gross value added (GVA) and a decrease in the number of hours worked (-0.5%). As an anecdote in these figures is that the coronation of King Charles III on 6 May 2023 led to an additional bank holiday on Monday 8 May that should be considered when interpreting the variations in hours worked in this quarter with the previous quarter (Quarter 1 2023), the comparison with a quarter a year ago (Quarter 2 2022) and the consequent impact on output per hour worked.

The initial calculations for UK output per worker during Quarter 2, 2023 show no change (0.0%) when compared to the same period in 2022. Although there was an increase in the number of workers, it was accompanied by only a slight rise in GVA (0.4%).

In Quarter 2 of 2023, the UK saw a 0.4% increase in output per worker compared to the previous quarter, which improved a bit from the records obtained in the previous quarter (-1.4%). This was due to a 0.2% rise in GVA and a 0.2% decrease in the number of workers with respect to the January-March 2023 quarter.

When analysing industrial contribution to growth in output per hour worked for the second quarter of 2023 compared to the same quarter the previous year, it was found that the administrative services industry had the largest positive impact on productivity growth. Conversely, the finance and insurance, energy, mining, and quarrying industries had a negative impact on annual productivity growth. In addition, there was a positive contribution to productivity growth through reallocation between industries over the past year. This means that economic activity shifted primarily from industries with lower productivity to those with higher productivity.

General discussion

Apart from the low productivity records, the UK also has the highest inflation rate among the G7 countries. Core inflation has been extremely high in the last months, reaching 10.4% in February, slowing down to 8.7% in May and 6.8% in July, given the latest reductions in energy prices, prompting the Bank of England to raise interest rates many times since November 2022, to its highest point since 2008, being in August 5.2%. By comparison, July inflation was 3.2% in the US and 5.3% in the euro area.

There is concern at the Bank of England regarding the impact of wages on inflation. Tight job markets like the UK tend to lead to higher wages, which in turn pushes companies to raise prices to offset their additional wage costs. From March onwards, the average weekly earnings (including bonuses) increased by 6.1% compared to the previous year, followed by a further increase of 6.5%. As the cost of living continues to rise, there is mounting pressure to raise wages. Despite a slight increase in the unemployment rate of 0.1% to 3.9% during the first quarter of 2023, the rate in April was lower than anticipated at 3.8%.

Some explanations for the UK’s persistently high inflation are linked to labour market shortages, the energy crisis, Brexit effects and a mechanism that shields consumers from high energy costs.  Research by the LSE suggested that a third of UK food price inflation from the end of 2019 to March 2023 was caused by Brexit because extra border costs added £7 billion to grocery bills.

Despite economic challenges, the UK’s growth prospects received a boost from the International Monetary Fund (IMF) in May. The IMF revised its forecast for UK real GDP growth in 2023, predicting a year-on-year increase of 0.4%, a significant improvement from its previous estimate of -0.3%. The IMF credits this improvement to the UK’s resilient demand and decreasing energy prices, which are expected to help the country avoid recession and maintain positive growth in 2023. The IMF predicts an annual GDP growth of 1.0% for the UK in 2024.