A sharp drop in British productivity has cast further doubt over the country’s economic prospects and will add to pressure on the government to prove its productivity plan can bear fruit.

Official figures show labour productivity, as measured by output per hour, fell by 1.2% in the fourth quarter of 2015 from the third quarter, the biggest fall since the financial crisis in 2008.

Underscoring Britain’s sluggish productivity performance since the financial crisis, statisticians also said output per hour was 14% below where it would have been if pre-downturn trends had continued.

That struggle to get more output out of each hour worked has left the UK lagging behind other advanced economies and raised concern about living standards as employers feel less able to raise pay.

Output per hour drops

Whole economy output per hour, seasonally adjusted. Illustration: Office for National Statistics

The Office for National Statistics said that for 2015 as a whole, output per hour grew 1%, the best performance since 2011 and would have been stronger but for a jump in average hours worked in the final quarter of the year. Ministers will be hoping that the end of year productivity slump was a blip but economists expressed concern about the figures, which on the surface suggested British workers had increased their hours but failed to increase their output at the same time.

Howard Archer, economist at IHS Global Insight said the relapse in productivity was “disappointing and worrying news for UK economic prospects. The crucial question for the UK economy is does the fourth quarter of 2015 mark a temporary relapse in productivity. Or is it evidence that the UK has an ongoing serious productivity problem.”

The British Chambers of Commerce said weak productivity was hampering the UK’s overall economic growth. “There are deep-rooted structural problems in our economy that have dampened productivity – from skills shortages, to infrastructure bottlenecks and limited growth finance,” said Suren Thiru, head of economics at the group. “Delivering solutions to these critical issues would go a long way to achieving the productivity gains we need.”

But the Institute of Directors (IoD) warned against reading too much into the latest figures. “The key thing is not too get too worried about one statistic; there is no point in comparing ourselves to the pre-crisis productivity trend, which was a feature of a bubble about to pop,” said its chief economist, James Sproule.

The figures follow a gloomier outlook for the UK economy from the government’s independent forecasters, the Office for Budget Responsibility (OBR). That downgrade, published alongside the chancellor George Osborne’s March budget, was largely driven by what the OBR’s experts saw as bleaker prospects for productivity growth.



The government has vowed to address the UK’s woeful productivity performance, which has left the gap with other leading western economies at the biggest since modern records began in the early 1990s. Output per hour worked in the UK was 18 percentage points below the average for the remaining six members of the G7 group of industrial nations in 2014, the Office for National Statistics reported in February.

The business secretary, Sajid Javid, who says boosting productivity is the economic challenge of our age. Photograph: Ben Pruchnie/Getty Images

The business secretary, Sajid Javid, said last year that “boosting productivity is the economic challenge of our age” and the government launched a productivity plan in July 2015. But that plan was recently criticised by an influential committee of MPs for lacking clear goals and original ideas on how the UK can catch up with other advanced economies.

The Commons business, innovation and skills committee questioned whether the plan was worthy of its name and urged the government to be bolder.



Britain’s failure to boost productivity since the downturn, known as the productivity puzzle, has also been a focus for the Bank of England as it seeks to work out how much businesses can raise output without piling up inflationary pressures.

But policymakers were unlikely to be worried about inflation based on the the latest productivity figures, given they showed only slow growth in unit labour costs, said Alan Clarke, economist at Scotiabank.

Unit labour costs were up 0.4% in the fourth quarter from the third quarter and were 1.3% higher compared with a year earlier. The Bank was already expected to keep interest rates at their record low of 0.5% for many months to come and these figures would make little difference, said Clarke.

“The Brexit vote has tied the BoE’s hands for the time being. If an imminent rate hike was on a knife edge, this data release would have just pushed the hike into the long grass,” he said. “But with a rate hike a distant prospect, this release merely confirms the market thinking.”