Productivity ‘a significant concern for economy’

Nick Elvin

UK firms look set to boost job creation in the coming months, but a lack of productivity growth is a cause for concern for the economy.

That’s according to the latest Business Trends Report by accountants and business advisers BDO LLP.

Hiring intentions for UK companies show figures stronger than during the mid-2000s boom, with BDO’s Employment Index measuring 113.0 – well above its long-term trend and significantly higher than the 104.3 recorded a year ago.

However there are still big areas of concern, not least a failure to increase productivity, despite continuing strong economic expansion. The report points out that British workers’ output per hour has been static during the last two years of the recovery – which BDO says is unique among advanced economies.

But despite this negative trend, BDO’s Output and Optimism Indices, which predict economic growth three and six months ahead respectively, remain significantly above the 100 mark, which indicates growth above the long-term trend.

The Output Index rose to 103.9 in March while the Optimism Index held firm at 104.9, revealing UK business confidence to be at levels not seen since summer 2014.

Firms have been given an additional boost as input costs continue to fall, with BDO’s Inflation Index sitting at 93.8 (down from 94.7 last month and 97.1 a year ago), indicating deflation.

Commenting on the findings, Peter Hemington, partner at BDO LLP, said: “While it is encouraging to see strong business confidence, the UK’s continuing poor labour productivity performance is a very significant concern.

“Although employment growth in recent years has been strong, much of this has been in part-time jobs. Productivity ultimately determines our prosperity so it is a crucial area that must be addressed. Policymakers of all persuasion must take on this productivity puzzle.”