UK productivity reassessment narrows post-crisis gap with peers

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UK productivity reassessment

Highlights

ONS revises UK productivity growth for 2009–2019 to 1.3% per year from 0.7%, due to a component-based methodology capturing fewer working hours.
The new methodology lifts UK output per hour worked to roughly 7 percentage points higher pre-Covid-19 than previously calculated, without altering GDP estimates.
Revised figures narrow the perceived post-crisis productivity gap with G7 peers, reducing the apparent severity of the UK's productivity slowdown.

ONS revises productivity growth methodology

As reported by Financial Times, citing the Office for National Statistics, output per hour worked grows by an average of 1.3 per cent a year between 2009 and 2019, up from the previous estimate of 0.7 per cent. The revision follows the adoption of a new component-based methodology that draws on a broader set of data sources to measure both the number of workers contributing to output and the hours they work.

The ONS says the updated sources better capture annual leave, sickness absence and overtime, and indicate that people work significantly fewer hours than previously thought. Estimates of UK GDP remain unchanged, but the new approach suggests the level of UK output per hour worked is roughly 7 percentage points higher on the eve of the Covid-19 pandemic than earlier calculations showed.

Richard Heys, ONS deputy chief economist, says the revised method does not alter the broader picture of a post-crisis productivity slowdown. He says the UK still records its weakest productivity growth since the second world war, and arguably since the Napoleonic period.

Implications for the UK economic outlook

The revised figures are likely to soften the view that Britain suffers an exceptionally severe productivity collapse compared with other major economies. OECD data, while not strictly comparable with the ONS figures, shows annual average growth in output per hour worked across G7 countries ranges from about 0.5 per cent to 1.3 per cent over 2009 to 2019.

Jonathan Portes, professor at King’s College London, says the new numbers suggest the UK productivity disaster looks less severe than previously thought. He adds that the country’s pre-Covid jobs boom also appears less remarkable, because rapid employment growth had helped drive GDP during that period.

The methodological change is unlikely to alter economists’ reading of productivity trends since the pandemic, because it broadly matches recent calculations based on tax records rather than the labour force survey. It is also unlikely to change the Office for Budget Responsibility’s forecast for the trend UK growth rate, which remains a key factor in the fiscal outlook.

The ONS plans to publish regional and sector breakdowns next year using the new methodology, which could offer fresh insight into the causes of the UK’s post-2008 productivity slowdown. The agency also says the direct method used until now has shown a systematic bias toward overestimating average working hours in earlier OECD work.

In our earlier article, we covered the ONS’s experimental productivity measurement approach that lifts estimates of output per hour compared with the current model. The new method implies UK productivity — and therefore the economy’s underlying growth trend — has been slightly stronger over the long run, while the ONS continues refining how these changes are measured.

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