To learn that UK productivity levels lag behind the rest of Europe is no longer news, but to see that they are still behind the rates achieved before the global financial crisis in 2008 possibly is.
The latest numbers from the Office of National Statistics show that while output perked up slightly in Q2 and was up 1.4% compared with the same period last year, it is still behind the 2% average seen before the downturn and has barely risen over the past decade.
When we dive below the headlines, we see that growth across the sectors and regions is patchy. The services sector was the primary driver of the Q2 upswing and transport and manufacturing also put in strong performances, but productivity in what is generically classified as non-manufacturing production showed a sharp decline. This includes activities such as agriculture, mining, gas and electricity and waste management. On a regional basis, Yorkshire and The Humber, the North East, the East, and the North West experienced the largest slowdowns in average growth in labour productivity.
So, while overall, it's good to see a seventh consecutive quarter of growth, the productivity puzzle for the UK economy clearly still remains.
The general consensus, as expressed by Howard Archer, chief economic adviser to the EY ITEM Club is that businesses need to invest for productivity to improve and yet, with the sustained uncertainty around Brexit, it is hardly surprising that businesses are keeping whatever cash they have in the bank and are choosing to adopt a "wait and see" policy.
With wage growth also suppressed it is easier for businesses to invest in low-skilled labour rather than more highly productive technology.
Here at Productivity Finance, we share the view that businesses need to invest to improve productivity, but do not believe this always has to be at the expense of depleting reserves or taking on unsustainable debt. The investment can come in efficiency and growth techniques as well as tangible assets, for example, by focusing on performance management, maximising sales, leadership development, strategic planning and operational efficiency.
Where cash is needed to finance training, development or assets there are many different forms of borrowing available that can be structured around cash flow and not all of them require the sort of regular monthly repayments of capital and interest that are normally associated with a term loan.
The productivity puzzle isn't going to be easily fixed at a national level, but for forward thinking, ambitious businesses, there are solutions and lending products on offer that can help them invest and get ahead of the pack.
By: Paul Marston<< Back to latest blogs