U.K. Productivity Rises as Lockdowns Shut Bars and Restaurants

U.K. productivity has proved unexpectedly resilient during the pandemic, with more than a year of lockdowns and restrictions forcing the closure of businesses with relatively low levels of hourly output.

The effect was on display again in the first quarter, when the country went into a third lockdown to stop the spread of coronavirus. That forced bars and restaurants to shut. By contrast, professions with more highly educated staff such as law firms, accountants and IT companies were able to continue working, extending a pattern seen since the pandemic struck in March last year.

The volatility of the data during the pandemic has clouded the debate over what economists call the “productivity puzzle,” the sharp slowdown in output per hour that has plagued the economy since the financial crisis a decade ago. It’s a problem that Prime Minister Boris Johnson will have to address if he’s deliver on his pledge to “level up” poorer regions of the U.K.

The allocation effect -- changes in the mix of activities in the economy -- was a positive for productivity between January and March, “indicating a move of activities from less productive industries to more productive industries,” the Office for National Statistics said Wednesday. That’s likely to shift again in the second quarter, when the easing of restrictions allowed shops and the hospitality industry welcome back customers.

U.K. Productivity Rises as Lockdowns Shut Bars and Restaurants

Overall, output per hour rose by 0.9% from a year earlier, as the number of hours worked fell faster than economic output. Experimental analysis that excludes furloughed workers suggests that output per job among those still working was 9.2% higher than a year earlier, well above pre-coronavius levels.

Prior to the pandemic, Britain’s productivity performance was the worst since the 1800s. Hourly output is still around quarter lower now than it would have been had it continued to grow as it did in the years before the financial crisis.

U.K. Productivity Rises as Lockdowns Shut Bars and Restaurants

The malaise, which the U.K. shared with other advanced economies, depressed wages and restricted how fast the economy could grow without fueling inflation. The Royal Statistical Society named an average 0.3% annual increase in productivity since 2008 the “statistic of the decade,” driving a profound impact on the economy.

©2021 Bloomberg L.P.

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