Productivity Measurement Analysis series – UK Q3 2024 by Ruby Watson and Raquel Ortega-Argilés
This commentary, based on the comprehensive productivity flash estimate and overview for the UK from July to September 2024 and April to June 2024, provides a detailed analysis of productivity trends in the UK.
General summary and main figures
On 15 November 2024, the Office for National Statistics (ONS) released its flash estimate of the UK productivity for the third quarter of 2023 (July-September). These estimates were based on quarterly estimates of gross domestic product (GDP) and labour market statistics, as well as a productivity overview for Q2 2024. Unfortunately, these results showed weak growth compared to Q2 2024. Preliminary estimates based on the Labour Force Survey (LFS) indicate a decrease in output per hour worked by 1.8%. This presents as being weak when compared with medium term trends, based on LFS estimates. Output per worker increased by 0.3% in Q3 when compared to Q3 of 2023. Growth reached 0.3% above its pre-pandemic levels, compared with 0.9% in the previous quarter.”
Period |
Output per hour worked growth rates |
Output per worker growth rates |
|||||
| Quarter vs 2019 pre- pandemic levels (%) | Quarter-on-year (%) | Quarter-on-quarter (%) | Quarter vs 2019 pre-pandemic levels (%) | Quarter-on-year (%) | Quarter-on-quarter (%) | ||
| Q3 2023 | 3.9 | 0.7 | 0.8 | 1.8 | -0.2 | 0.1 | |
| Q4 2023 | 2.9 | -0.3 | -1 | 1.2 | -0.7 | -0.6 | |
| Q1 2024 | 2.7 | 0.1 | -0.2 | 2.4 | 0.9 | 1.2 | |
| Q2 2024 | 2.8 | -0.3 | 0.2 | 2.6 | 0.9 | 0.2 | |
| Q3 2024 | 2 | -1.8 | -0.8 | 2.1 | 0.3 | -0.5 | |
Insights into the Q3 2024 productivity release
As indicated with previous quarterly estimates, the ONS highlighted revising the weighting of the Labour Force Survey (LFS) to include revised estimates on population and migration data. This should be considered when analysing the data and figures produced. Considering this, Q3 2024 output per worker was lower due to more working hours. It has to be noted that, as indicated in the latest ONS release on the reweighting of the Labour Force Survey published on the 3 December 2024, the reweighted estimates of output per hour worked and output per worker are indicative, leaving the Quarter 3 (July to Sept) 2024 estimates as the lead measures until the next Productivity Flash Estimate and Overview publication on 18 February 2025 (read a commentary of the effects of labour productivity data of the reweighting of the LFS).
In terms of sectoral contribution, the education industry made the largest upward contribution to productivity growth over the previous year (Q2 2024 compared to Q2 2023), primarily due to an upward revision in Gross Value Added (GVA). The mining and quarrying industry saw the biggest growth in output per hour worked, driven by a decrease in hours worked and an increase in GVA. The estimates show a clear between-industry effect with an economic shift towards lower productivity industries, resulting in a negative re-allocation effect for the third consecutive quarter. This is also a reflection of the latest data on GDP, which showed an increase in the services sector by 0.1% and the construction sector by 0.8%, but a decrease in the output of the production sector by 0.2%
Experimental methods were implemented in Q3 2024 and clearly impacted the UK productivity estimates. These included using Pay-As-You-Earn (PAYE) metrics alongside Real-Time Information estimates (RTI) and the LFS. Using these methods indicated output per worker increased by 0.5% compared to the same quarter a year ago. However, these results should be cautiously approached due to the methods being experimental. Upwards revision in GVA resulted in the education industry seeing the biggest upward contribution to productivity growth over the previous year.
When looking at the long-term effect, output per hour worked was 2.0% above its pre-COVID-19 pandemic levels in Q3 2024, but recent movements suggest an underlying weakness in UK productivity growth.
Discussion
Since the start of the Labour government in July 2024, growth and productivity have been at the forefront of economic discussions. Sky News reported Chancellor of the Exchequer Rachel Reeves as being dissatisfied with the growth, claiming she wants “growth to be stronger”. Consequently, fiscal policy endeavours to concentrate on reforms to overcome the low growth seen in Q3 2024; reforms include the pension system as well as business investment. Having been in for only 5 months, the new Labour government faces the challenge of ensuring growth remains on the right trajectory. Disappointingly, growth shrank in September by 0.1%, which subsequently brought down the overall growth for Q3. The growth seen was also slower than anticipated compared to the 0.5% drop in Q2. On a positive note, the OECD lifted its forecast for UK GDP growth in 2024 from 0.4 to 1.1%, suggesting the UK may not be a lost cause for growth despite the disappointing results from Q3.
