Johnson Gets Reminder of Productivity Challenge Facing U.K.

(Bloomberg) --

The challenge facing Prime Minister Boris Johnson to improve Britain’s dismal productivity performance was laid bare by new figures published Wednesday.

Output per hour was just 0.1% higher in the third quarter than a year earlier. While the increase ends the longest stretch of declines for 6 1/2 years, it will do nothing to ease concerns about the “productivity puzzle” that has plagued the economy since the financial crisis.

Weak productivity growth has depressed wages and restricted how fast the economy can grow without fueling inflation. So persistent is the problem that the Royal Statistical Society named the average 0.3% annual increase since 2008 the “statistic of the decade.”

Britain is far from alone. Productivity has been slowing across advanced economies. The U.K. nonetheless stands out, with only Italy posting a worse performance among G-7 nations. Hourly output is around a quarter lower than it would be had it maintained the 2% growth experienced in the years before the crisis.

Chancellor of the Exchequer Sajid Javid responded to the latest figures by promising to use his March 11 budget announcement to deliver “ambitious plans to level up across the country and unleash Britain’s potential.” Those plans are expected to include billions of extra pounds for infrastructure projects.

But with Britain due to leave the European Union on Jan. 31, some worry the situation could get worse if the economy is deprived of productivity-enhancing innovation and investment.

Separate figures from the Office for National Statistics showed unit labor costs climbing 3.6% from a year earlier as employment costs outpaced meager productivity growth. The figures are watched by the Bank of England as an indicator of domestically generated inflation.

To contact the reporter on this story: Andrew Atkinson in London at a.atkinson@bloomberg.net

To contact the editors responsible for this story: Fergal O'Brien at fobrien@bloomberg.net, Brian Swint

©2020 Bloomberg L.P.