Productivity – from a manufacturing perspective

It’s been hard to ignore the fact – or the statistics – that productivity performance in the UK is down. Productivity is important; it is one of the main drivers towards economic growth. It is measured as the amount of work produced (the output) per working hour.

Ever since the UK entered recession, productivity has stalled. This in itself is not unusual; growth across all sectors drops in a recession. However, since the slump in 2009, productivity has yet to return to its pre-recession levels. This is despite good economic growth and improving labour market conditions. In other periods of recession, the UK’s productivity has bounced back much quicker, so what makes this time so different? And why is it a problem that seems to be affecting us and not, for example, France or Germany?

This has been referred to as the ‘productivity puzzle’ and it’s a conundrum that needs solving to ensure a strong overall economy going forwards, not to mention wage growth, which in turn improves the country’s living standards.

How is manufacturing holding up?

Manufacturing is just one part of the UK’s productivity performance. The statistics also include services and other sectors of the economy. Out of these, manufacturing was performing comparatively better last year, suggesting that while it’s a contributor to low productivity, it’s not always the weakest link.

However, the most recent data on productivity, released in July 2018 and relating to the first quarter of this year, shows that manufacturing productivity has slumped again. The output per hour in manufacturing alone dropped 1.7% compared to the previous quarter (the overall economy saw a productivity drop of 0.4%). This comes as a blow to the industry, which was starting to show renewed hope for an upturn in fortunes.

What can be done?

Manufacturers and UK policymakers need to work towards a common goal: to improve productivity across all sectors. Improvements could include the use of new processes and technologies, and better business models to make global trade more accessible. The uncertainty surrounding Brexit and what impact this will have on global trading is certainly a factor at play, but investment in modern digital processes can only have a positive impact. We’ve already explored how digital manufacturing will change the face of the industry going forward, and the role of innovation in UK manufacturing in previous blogs.

EEF suggests that there is an urgent need for an independent strategy council, which sets clear goals to boost the UK’s manufacturing performance as a priority. Chief economist at EEF, Lee Hopley, said in a company statement: “We’ve known about the productivity problem for some time with various attempts made to try and fix it across the whole economy. Productivity growth matters for wages and international competitiveness yet ten years on from the start of the financial crisis these attempts have not delivered a major shift and we need to tackle the challenge in a different way. Manufacturing offers a good area to get gains on productivity growth. The industrial strategy council should now be created urgently and put to task to identify how the overall strategy can improve productivity in those industrial sectors where it has lagged.”

We’ll be watching with keen interest to see what policies the government puts in place to help with UK productivity. Keep an eye on our Blog for the latest news.