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– Jul 11th, 2023

Q1, 2023: UK’s Productivity Annual Growth is at its lowest level since 2012

Productivity Measurement Analysis – UK, Q1 2023 analysis by Raquel Ortega-Argilés

This blog relates to the quarterly labour productivity statistics, details of which can be found on the Office for National Statistics (ONS) Labour productivity page, and for the main publications: UK productivity flash estimates, produced based on data from the gross value added (GVA) first quarterly estimate and the Productivity Overview UK which refers to the estimates produced using the latest quarterly estimate data from the GVA. One of the strengths of the data is the possibility to develop international comparisons as they follow the OECD, UN and ILO international standards and guidelines. Another advantage of the data is the flexibility of its approach to data compilation that can account for economic shifts, for example, to provide productivity data excluding furloughed workers during the Covid-19 pandemic (see here for a further explanation of data strengths and limitations).

UK Labour Productivity Estimates by ONS

Official ONS UK Productivity data releases include four main sets of productivity data estimates:

  • Output per hour worked includes annual and quarterly estimates for gross value added (GVA), hours worked, and output per hour worked for the whole economy. It also contains estimates for a group of industries defined by the Standard Industrial Classification (SIC) 2007, including quarter-on-quarter, year-on-year and quarter-on-year contributions to the whole economy output per hour worked. This is ONS most preferred measure of labour productivity because it accounts for different working patterns.
  • Output per job includes annual and quarterly estimates for GVA, jobs and output per job by bespoke, section and division-level industry, as per SIC 2007. It also includes quarter-on-quarter, year-on-year and quarter-on-year contributions to the UK economy’s output per hour worked.
  • Output per worker contains the annual and quarterly statistics for gross value added (GVA), workers, and output per worker by bespoke industries.
  • Labour costs and labour income data include the unit labour cost, average labour compensation per hour worked, labour share and unit wage cost for the whole UK economy, and unit wage cost for manufacturing.

General Commentary: Q1 2023 release

On July 7 2023, a new productivity data release from ONS revealed that the UK’s productivity growth experienced important decreases in all the different productivity estimates (output per hour worked, output per job and output per worker).

Given that productivity is a long-term measure, as ONS indicates is more robust to compare it against the quarter a year ago, instead of quarter-on-quarter, as this will account for volatily in the estimates. As measured by output per hour worked, UK labour productivity decreased by 1.4% during the first quarter of 2023, compared to the previous period with a 0.4% growth. This has marked the first period of decline in productivity since the first quarter of 2022 and the largest decrease since the fourth quarter of 2020. However, the gross value added has seen a slight increase of 0.1% (compared to 0.2% in Q4 2022), while the number of hours worked has increased by 1.6% (compared to -0.3% in Q4 2022). Compared with the previous year (Q1 2022 or year-on-year output per hour worked), UK’s labour productivity decreased by 0.6%, the largest fall since Q1 2013, excluding the Covid-19 pandemic period. This last figure was explained by an increase of 0.2% in GVA and 0.8% in the number of hours worked.

According to data from the first quarter of 2023, output per worker and output per job were lower by 0.9% and 1.0%, respectively, compared to the same period in 2022. This marks the weakest annual growth in these statistics since Quarter 3 of 2009 (excluding the Covid-19 pandemic).

Compared with pre-pandemic levels, as indicated in the table below, the increase in GVA and number of workers (both 0.6% since 2019) have made output per worker remain stable while increasing output per hour worked (0.6% since 2019) due to the steady growth in hours worked (0.0% since 2019). The larger increase in the number of jobs (1.0%) with respect to GVA (0.6%) ended, showing an output per job below (-0.4%) than its pre-pandemic level.

  Quarter-on-year ago comparison (Q1 2022) Quarter-on-quarter comparison (Q4 2022) Pre-COVID-19 comparison (2019 average)
Output per hour worked -0.6% -1.4% +0.6%
Output per worker -0.9% -0.4% 0.0%

Source: ONS data, based on 7 July 2023 release.

These estimates provide valuable insight into each industry’s contribution to the UK’s labour productivity growth and the extent to which it is influenced by labour input movement between industries. In the same quarter compared to the previous year, the construction, administrative service sectors, and between-industry reallocation industries made the top three largest positive contributions to annual productivity growth measured as output per labour worked. Meanwhile, finance and insurance, real estate (driven by an increase in the number of hours worked compared with Quarter 1 2022), and public services made the least contributions.

Quarter-on-year ago productivity comparison by industry shows that water supply and administrative services experienced the biggest increases in output per hour worker. Real estate and transport and storage had the biggest fall in output per hour worked. In terms of unit labour costs and hourly labour compensation, it’s worth noting that total employment costs have been responsible for significant percentage increases of these statistics since Q2 2020.