By Ruby Watson and Raquel Ortega Argilés
Overview
On 29 January 2025, the Office for National Statistics (ONS) released a publication on productivity trends in the UK covering the period from July to September 2024. These estimates are based on Gross Domestic Productt (GDP) quarterly national accounts, the UK inclusive wealth and income accounts, and labour market statistics. This review considers the latest Labour Force Survey (LFS) data, which has been reweighted with more up-to-date population data. As highlighted in a previous lab blog post (The impact of the Labour Force Survey reweighting on productivity estimates blog), the reweighting has seen the UK population estimates for those aged 16-64 increase. It has also reduced discrepancies between various data sources, for example, reducing the gap between LFS and payroll estimates for the number of employees. Data volatility still remains within the LFS reported data until the reweighting is complete, and therefore, results should continue to be interpreted with caution.
The implications of this reweighting include increased measures of Output per Hour Worked (OPH) and Output per Worker (OPW), ultimately reducing labour productivity when using this source. As indicated in the release: “OPH for July to September decreased by 2.4% when compared with the same quarter a year ago, while before reweighting estimates showed a decrease of 1.9%” (see Figure 1). As Figure 2 shows, “Indicative estimates of OPW for July to September 2024 decreased by 0.4% when compared with the same quarter a year ago, while the before reweighting estimate showed an increase of 0.2%”
Figure 1.Output per Hour Worked (OPH) Q12009-Q12024 – comparing LFS new and old weights. Data Source: ONS, own elaboration by TPI Productivity Lab
Figure 2. Output per Worker (OPW), Q12009-Q12024 – comparing LFS new and old weights. Data Source: ONS, Own elaboration by TPI Productivity Lab
Trend analysis using different data sources
“The revisions in productivity since the coronavirus (COVID-19) pandemic suggests that the underlying weakness in UK productivity growth remains”
Analysing the time series by breaking it into different periods (such as since COVID-19) can provide a more detailed understanding of each interval, allowing us to consider any macroeconomic shocks or dynamics that may have occurred. The two periods of interest were Q1 2009 to Q4 2019 and Q1 2021 to Q3 2024. The period of the COVID-19 pandemic has been deliberately omitted due to issues with the Labour Force Survey (LFS) during that time. By taking this approach (Figure 3), we can show that the reweighting of the LFS has aligned various data sources of labour productivity more closely. The comparative data sources used include Pay As You Earn (PAYE) Real Time Information (RTI) and Short-Term Employment Surveys (STES).
Figure 3. Output per Hour Worked (OPH) data sources comparison, Q3 2014 – Q3 2024. Data Source: ONS.
The different data sources also agree that the “post coronavirus pandemic period displays a fall in output per hour (OPH) and a weaker downward trend in output per worker (OPW)”.
Figure 4. Post-COVID Output per Worker, Q1 2021 – Q3 2024. Data Source: ONS, TPI Productivity Lab own elaboration
Figure 5. Post-COVID Output per Hour Worked, Q1 2021 – Q1 2024. Data Source: ONS. TPI Productivity Lab own elaboration
Alternative concepts of labour productivity
In addition to examining various data sources, insights can be gained by looking at different concepts, particularly, what economic activity means. This analysis by ONS was done by using inclusive wealth and income (IWI) accounts to calculate gross value added (GVA) and net value added (NVA), which are then used to assess labour productivity. Comparisons were made between alternative productivity measures of inclusive GVA per hour and inclusive NVA per hour alongside the traditional measure of GVA per hour. “Inclusive GVA adjusts traditional GVA by including:
- Quality adjusting public service output
- Unpaid household work
- Investment in additional intangible assets
- Ecosystem services outside the national accounts production boundary
“Inclusive NVA per hour takes account of capital consumption; it accounts for the fact that some amount of value in each period needs to be created just to replace the value of capital “used up” in the period
“Inclusive GVA per hour grew by 8.7% between 2005 and 2018, compared with 7.2% for GVA per hour”; the growth in productivity of unpaid household work explains this difference. 2020 also witnessed a fall in inclusive GVA per hour, which can be attributed to unpaid household work. Inclusive NVA per hour grew more strongly than inclusive GVA per hour between 2005 and 2018 by 9.9%. Post-COVID-19 pandemic growth averages 1.1% between 2021 and 2022, “materially exceeding the traditional Labour Force Survey (LFS) based national accounts consistent estimate.”
These comparisons show estimates based on IWI accounts deliver faster growth both pre and post the coronavirus pandemic. This suggests “the UK saw a relative shift in innovation and productivity growth towards a non-traditional component of the wider economy”
Reflecting on the latest quarterly figures
According to a report from the Guardian, GDP increased by 0.1% in the fourth quarter (Q4) of 2024, bringing the total growth for 2024 to 0.9%. However, the GDP per capita trend is declining, indicating lower living standards. Data from the ONS shows GDP per head increased by 0.1% in Q4 2024. There are ongoing concerns about the weak growth trajectory, as GDP per capita has been decreasing in six of the last eight quarters.
