Slump in third quarter adds to dismal record on improving efficiency since financial crisis

The productivity growth of British workers fell to a two-year low in the third quarter of last year, according to official figures released amid warnings that failures of government policy and Brexit are holding back efficiency gains.

According to the Office for National Statistics, annual growth in economic output per hour of work slumped to 0.2% in the three months to September, down from 1.6% in the second quarter and marking the weakest period since the third quarter of 2016.

The latest snapshot underlines the continuation of Britain’s dismal track record since the financial crisis on improving labour productivity, which is vital for economic growth and raising workers’ wages.

While the UK has managed to grow employment to record levels, with the jobless rate the lowest since the mid-1970s, the rate of growth in productivity languishes at about one-tenth of the average observed before the 2008 crash.

Economists argue that many of the jobs created since the financial crisis have been in low-paid sectors where productivity is limited, acting as a drag on growth. Britain also has a poor track record in investing in technology, skills and training that could lift the rate of growth.

Howard Archer, the chief economic adviser to the EY Item Club, said it was possible that companies had chosen to take on more staff in recent months instead of making more investments in productivity-boosting technologies, given the heightened uncertainty over Brexit. Business investment has fallen for three quarters, the worst period since the financial crisis, which potentially paves the way for weak productivity growth in future.

“The low cost of labour relative to capital has certainly supported employment over investment,” he said.

Sign up to the daily Business Today email or follow Guardian Business on Twitter at @BusinessDesk

Improving labour productivity is a key government priority, forming the backbone of the industrial strategy, although lobby groups and Labour politicians warn too little is being achieved.

Tej Parikh, a senior economist at the Institute of Directors, said the strategy had been sidelined by Brexit talks and Whitehall preparations to leave the EU. “We need more [government] support for skills, infrastructure and technological development at national and regional levels,” he said.

“Ultimately, with uncertainty hitting business investment and limiting policy headway last year we are unlikely to see a boom in productivity anytime soon.”