Lost ground has been recovered, but other major economies remain more productive, says Office for National Statistics

The UK’s productivity rate has returned to its pre-crisis level for the first time, but the country still lags well behind other major economies after years of sluggish growth.

The Office for National Statistics said output per hour increased by 0.6% in the second quarter of this year and had at last recovered the ground lost after the 2008 downturn.



However, underscoring the challenge faced by the chancellor, Philip Hammond, who has vowed to improve Britain’s lacklustre productivity, ONS figures for 2015 showed that the gap between Britain the rest of the G7 group of leading economies remained stubbornly wide. At 18 percentage points in GDP per hour worked terms, the divide was unchanged on the 2014 level and economists warned that pressures on UK businesses from the Brexit process could see the gap widen again over coming years.

UK productivity was 27, 30 and 35 percentage points lower than in France, the US and Germany respectively.

Experts have repeatedly highlighted Britain’s poor productivity performance as a key factor in the squeeze on living standards in the years after the financial crisis. In his speech to the Conservative party conference this week, Hammond said: “If we raised our productivity by just 1% every year, within a decade we would add £250bn to the size of our economy – £9,000 for every household in Britain.”

The failure to get UK productivity growing again since the downturn is known as the “productivity puzzle”, with economists offering varying explanations, including an over-reliance on low-paid work, a lack of investment and the idea that productivity cannot rise at a high rate for ever.

The ONS noted that if pre-crisis trends had been sustained, output per hour in the UK would be 17.4% higher than it was in the second quarter. “Since 2008, productivity as measured by output per hour has remained broadly flat, following a long upwards trend in prior decades,” statisticians said.

Britain was not alone in taking a hit to productivity from the financial crisis. Statisticians said output per hour was lower in all G7 countries in 2015 than it would have been had pre-downturn trends continued since 2007.

The UK figures for the second quarter of this year, when the economy grew a relatively strong 0.7%, showed that output per worker was 0.2% higher and output per job was unchanged compared with the previous quarter.

But average hours worked fell compared with the previous quarter, resulting in higher growth in output per hour of 0.6%, the fastest pace for a year.

Output per hour in the services sector rose by 0.6% on the previous quarter and 1.1% on the year before. Output per hour in manufacturing rose by 2.2% on the previous quarter and was 1% higher than a year earlier.



John Philpott, the director of The Jobs Economist consultancy, said news of an increase in overall productivity growth was encouraging, but warned that the process of leaving the EU fuelled uncertainty about the UK’s ability to climb the international productivity rankings.

“While likely curbs on unskilled migration may aid productivity by removing the drip feed of cheap EU labour to less efficient businesses, productivity could suffer if anti-migrant sentiment prevents the UK from attracting talent,” he said.

“Far more important, however, will be the impact of Brexit on business investment, which is almost certain to be adversely affected by short-run uncertainty, with longer run recovery critically dependent on the precise Brexit settlement the UK eventually reaches with the EU. Either way, there is little to suggest that the UK economy will any time soon begin to reverse its post-recession slide down the international productivity league table.”

Ian Brinkley of human resources trade group CIPD echoed this warning and said the onus was on Hammond to find ways to keep productivity growing.

“With the long-term challenges posed by Brexit and wider adverse global trends, it is imperative that we do not let this recovery slip away,” he said. “Securing a sustained recovery can only come from increased investment in people and new technologies. The forthcoming autumn statement needs to show how the government intends to support future productivity growth through investment in infrastructure, skills, and the science base.”

Others have urged the chancellor not to focus solely on high-value sectors, but look at productivity in the parts of the economy that employ low-paid workers.

By broadening the industrial strategy to include low-paying sectors, the government could make greater economic gains, the Joseph Rowntree Foundation said, and lift hundreds of thousands of people out of working poverty.

The charity published an analysis this week showing that almost 1 million workers are trapped in working poverty in the retail, residential care, and hotels and catering sectors, in which productivity lags behind the economy as a whole.