Staff hire sky-high despite static productivity

14 April 2015 -

Puzzle as employment grows with productivity at standstill

Jermaine Haughton

UK employers are set to continue the current staff hiring spree but remain worried about the slump in productivity, according to new BDO research.

The latest Business Trends Report by BDO gave an employment index score of 113.0 for March, showing little change from the 113.1 reading recorded in February.

Scores over 100 show growth above the long-term trend. Therefore the latest reading suggests businesses are likely to keep creating jobs and expanding their workforce.

This is supported by official figures from the Office for National Statistics (ONS) which show a 102,000 fall in UK unemployment to 1.86m in the three months to January.

"The hiring intentions of UK firms are at 'sky-high' levels with figures stronger than the heady days of the mid-2000s boom," BDO said.

The report's optimism index showed that business confidence remained well above the 100 mark.

However, the low productivity levels of British workers have raised eyebrows among business leaders and economists, dubbed by the report as a situation “unique amongst advanced economies”.

Described by the International Monetary Fund as a major risk to growth, ONS figures show the work output per hour from UK staff has failed to increase from 2007 – an unprecedented trend in modern history.

Productivity is 21% lower than the average amongst the G7 countries, including Germany, the US and France, and Britain’s workers were less productive in the final quarter of 2014, with output per worker falling 0.2%.

BDO partner Peter Hemington said the UK's continuing poor labour productivity performance was a major worry.

“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,” he said. “Productivity ultimately determines our prosperity so it is a crucial area that must be addressed. Policymakers of all persuasions must take on this productivity puzzle.”

Other economic indicators have also appeared recently reflecting mixed results.

Last month, UK businesses saw their overall costs fall for the first time in six years. This is largely a result of the fall in the prices of crude oil globally, according to experts.

On the other hand, further ONS data, published last week, reveals that profits for a range of companies showed a downward trend. In particular, the net rate of return for service companies sunk to 16.9% in the final quarter of 2014, compared to the highest recorded quarterly level of 18.4% recorded in quarter three 2014. Private (non-financial) company profits were also down during the same period, from 12.3% to 11.9%.

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