Productivity Measurement Analysis series – UK, Q4 2023 by Reitze Gouma with comments by Bart van Ark, Managing Director of The Productivity Institute
General Summary and Main Figures
On February 15, 2024, the Office for National Statistics (ONS) merged their Productivity overview, UK and UK productivity flash estimate releases, owing to the reintroduction of a Labour Force Survey (LFS) based dataset in the February 2024 UK labour market. In their latest release, ONS provides flash estimates of labour productivity for Quarter 4 of 2023 (October-December). These estimates offer preliminary insights into the current state of productivity in the UK economy.
Preliminary estimates suggest that annual productivity growth remained flat, with 0.0% growth in terms of output per hour, while it decreased by 0.6% in terms of output per worker in 2023, compared to the previous year. Furthermore, output per hour worked decreased by 0.3% in Quarter 4 of 2023 compared with the same quarter a year ago, although it remained 2.0% above its pre-coronavirus (COVID-19) pandemic levels (2019 average level). Similarly, output per worker decreased by 0.6% in Quarter 4 of 2023 compared with the same quarter a year ago, but it was still 0.3% above its pre-COVID-19 pandemic levels.
Flash Estimates of Labour Productivity for Quarter 4, 2023
| Comparison | Quarter-on-year ago (Q4 2022) | Quarter-on-quarter (Q3 2023) | Pre-COVID-19 comparison (2019 average) |
| Output per hour worked (%) | -0.3% | -1.0% | 2.0% |
| Output per worker (%) | -0.6% | -0.6% | 0.3% |
Source: ONS data, based on the 15 February 2024 release.
UK productivity remains in the doldrums
Bart van Ark, Managing Director of The Productivity Institute, said:
“The decline in output per hour worked in the last quarter of 2023 (-0.3%) suggests that UK productivity remains in the doldrums. The even larger decline in output per worker (-0.6%) implies that while employment has increased, hours per worker have declined.
It’s worth noting that the latest GDP forecasts for coming quarters are somewhat improving, while employment growth is expected to slow or even decline. That should feed into an improved productivity reading in the coming months. But it is still unlikely to move the dial on what has already become a decades-long challenge if policymakers continue to drag their heels on tackling productivity stagnation.
With both parties outlining their plans for the economy ahead of this year’s General Election, it’s crucial they put forward ideas to raise productivity and recognise its importance for future prosperity. A national agenda to double annual productivity growth from 0.5 to 1 percent per year over the next 10 years would be a good start. If we don’t realise that improvement, GDP growth in the next 10 years is likely to fall well below what was achieved in the decade pre-pandemic.
The UK is increasingly relying on a few frontier firms to prop up its productivity reading. Except for those top performers, business investment and spending on training, skills and tech has been too low for years.”
Insights into the Q4 2023 Productivity Release
The Office for National Statistics (ONS) reinstated the Labour Force Survey (LFS) following its suspension in October 2023 due to declining response rates. This reintroduction was supported by planned improvements and a reweighting exercise aimed at enhancing the representativeness of LFS estimates from July to September 2022 onwards. A key article on the impact of reweighting on LFS indicators was published on 5 February 2024.
Subsequently, on 13 February 2024, the labour market publication resumed using reweighted LFS data. While challenges persist with response rates and sampling variability, LFS-based labour market statistics are designated as official statistics in development. However, GDP-related bulletins remain accredited official statistics. The productivity data released align with reweighted LFS data and are consistent with the Labour market overview, UK: February 2024 bulletin. Adjustments were made to total hours worked to ensure continuity in productivity statistics, diverging slightly from estimates in previous datasets.
Discussion
The persistently poor productivity performance in the UK has been a topic of concern. The Financial Times reports that productivity has remained almost unchanged since the financial crisis. While other countries also experience stagnation in productivity figures, the situation in the UK is particularly problematic. Various theories suggest unlocking investment, improving labour market supply, and public sector reform to potentially invigorate the country’s performance.
