Productivity growth ‘encouraging’ but rise in labour costs puts strain on profits

PRODUCTIVITY rebounded in the second quarter of the year, but still lagged rises in labour costs, piling pressure on company profits, official figures have suggested.

Workers clocked up less time in the office but still created more goods and services, driving up productivity by 0.5pc in the three months to June.

This helped generate 1.4pc productivity growth in the second quarter, compared to the same period a year ago. But this is still well below the longterm pre-crisis trend in productivity growth. In the years leading up to 2008, this key economic measure increased by roughly 2pc per annum.

Productivity helps determine wage growth and prosperity. The measure also correlates with firms’ profits, as the more output per hour grows, the greater the return a worker offers a business.

Productivity growth in the three months to June fell short of labour costs in the same period, which rose on average by around 2pc.

Howard Archer, of EY Item Club, said that the recent rebound in productivity was “encouraging”, but that “sustained” improvement would be needed in order to ease concerns about the UK’S poor productivity record since the 2008 recession.