UK labour costs rise at fastest rate since late 2013

British productivity struggled to break out of its post-financial crisis rut in the three months after June's vote to leave the European Union.

Year-on-year growth in unit labour costs edged up to 2.3 percent in the third quarter of 2016

Year-on-year growth in unit labour costs edged up to 2.3 percent in the third quarter of 2016

British labour costs rose at the fastest annual rate since late 2013 in the three months after the country voted to leave the European Union, despite continued steady growth in productivity, official figures from the ONS showed on Friday.

Year-on-year growth in unit labour costs – an underlying driver of inflation watched by the Bank of England – edged up to 2.3 per cent in the third quarter of 2016 from 2.2 per cent in the second quarter, its highest since the last three months of 2013.

Annual growth in output per hour rose to 0.4 percent in Q3 from 0.2 percent in Q2, though this partly reflects volatility in late 2015. Quarterly hourly output growth slowed marginally to 0.4 percent in Q3 from 0.5 percent in Q2.

‘These estimates of productivity show that while labour productivity is improving, particularly in the services sector, it is still weak compared to that experienced in the recent past,’ ONS economist Richard Heys says.

Phil Sheridan, senior managing director at Robert Half UK, thinks that while this is a step in the right direction, organisations must not get complacent.

‘Business success hinges on a motivated and productive workforce. Yes, rising workloads, a growing talent shortage and workplace digitisation means that today’s workforce is ripe for disruption – our research shows that 81 per cent of human resources directors have concerns about losing a top performer as the competition for talent intensifies.

‘Ultimately, a business is the sum of its parts. Without a continued focus on maintaining staff productivity, organisations will quickly fall behind.’

Mariano Mamertino, EMEA economist at job site, Indeed, comments that despite the labour market’s resilience, productivity simply refuses to pick up in any meaningful way and continues to confound expectations.

Mamertino says, ‘Britain’s stubbornly low wage growth had given early clues that productivity was likely to struggle, and the post-referendum uncertainty was never going to help.

‘While the full impact of the Brexit vote has yet to be felt, the UK labour market remains in far better health than most economists would have predicted even a few months ago. But such disappointing levels of productivity growth bely the economy’s apparent robustness and pose a serious threat to wage growth prospects.’

Ann Franck, chief executive of CMI adds, ‘Despite productivity improving, the UK continues to sustainably lag behind our G7 competitors. The ‘always on’ culture of constantly checking emails on smartphones and tablets out of office hours is having a deleterious effect on the health of managers, which has a direct impact on productivity. UK workers already have the longest hours in Europe and yet we’re less productive.

‘Having good quality leadership and management is the biggest factor in determining productivity. Good, skilled managers know that they need to switch off and empower their employees to do the same.

‘As such, they strike the necessary work/life balance, which must be a priority for every organisation facing up to the challenge of improving productivity. Through improving management and leading by example, productivity will go from strength to strength.’

Further reading on labour productivity

 

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