Image: FlickrIs this the best piece of news on the UK economy in over half a decade? If this proves to be part of a new trend, then it is.
Productivity is perhaps the single most important driver of an economy. An economy’s size depends on how many people are working, and how productive they are. Or, how much is produced per hour, and how many hours are worked. An economy can only grow if either employment rises, or productivity rises, or both.
Wages cannot rise for very long and avoid leading to inflation without a corresponding rise in productivity.
In the third quarter of 2017, UK output per hour, the measure of productivity that economists tend to focus on, saw its biggest rise since the second quarter of 2011.
In fact, in Q3 of this year, output per head rose by 0.9 per cent, concludes official data from the Office of National Statistics, out on January 5th.
Productivity grew by one per cent in both manufacturing and services.
Up to now, UK growth in productivity has been lousy this decade. If output per hour had continued to rise at the pre-2008 rate, since the 2008 crisis, then today it would be around 20 per cent higher. This means that all other things being equal, GDP would be 20 per cent higher, and government debt would be lower. The NHS would still be in crisis, of course, because it always is, but the crisis would be of an altogether different and less severe scale from the present one.
This chart from the ONS tells the story.
Now, this may be a one-off. But in theory, now that unemployment is so low, the only way a company based in the UK can increase output is by looking at ways to increase productivity, so maybe we are seeing this effect working.
If this becomes a trend, then this will be good news for UK plc.
