UK economy more productive than thought, as Bank of England prepares for interest rate decision – business live
From 55m ago 09.43 BST UK's economy more productive than previously thought Newsflash: Britain’s economy has been more productive since Tony Blair’s first election win
From 55m ago 09.43 BST UK's economy more productive than previously thought Newsflash: Britain’s economy has been more productive since Tony Blair’s first election win than previously thought. A new measure of measuring productivity, just released by the Office for Statistics, shows that annual productivity growth since 1997 has been stronger than it had estimated in the past. The ONS now believes that output per hour was 40.7% higher in 2024 than in 1997 under its new “component approach”, compared with 34.0% under the previous methodology. This implies annual productivity growth of 1.3% since 1997, compared with 1.1% under the current approach (which is based on the ONS’s shonky Labour Force Survey). The new “component” approach introduces explicit adjustments for annual leave, sickness, bank holidays, furlough and overtime, while benchmarking hours worked to employer-reported data; it will replace existing UK labour productivity statistics, the ONS says. Interestingly, the new approach shows that between 2009 and 2019, output per hour worked has grown faster than previously estimated. Under the old approach, growth slowed to 0.7% – but the new component approach shows growth of 1.3% after the financial crisis. But output per job growth slowed to 1.0% a year under both approaches. Share Updated at 10.07 BST 23m ago 10.14 BST Eurozone inflation revised down a little Some good news from the eurozone – inflation is not quite as high as first thought. Consumer prices across the euro area rose by 3.2% in the year to August, according to a new estimate from eurostat. It had initially estimated inflation rose to 3.3% in August. That’s still a rise from July, when prices rose at an annual rate of 2.9%. The lowest annual rates were registered in Sweden (0.3%), Estonia (1.3%) and Czechia (1.5%). The highest annual rates were recorded in Romania (6.3%), Lithuania (5.6%) and Cyprus (5.2%). Share 36m ago 10.02 BST Productivity puzzle partly solved The ONS appears to have partly solved the UK’s productivity puzzle. That puzzle is why UK output per hour after 2008 only grew at a much slower rate than would have been expected from the pre-GFC trend. The answer, is that Britons have not been working as many hours as the ONS estimated. It now estimates that total actual hours worked in 2024 were 11.1% above their 1997 to 2007 average – it had previously estimated growth of 18.5%. The ONS says: double quotation mark Under the component approach, improvements to actual hours worked can explain half of the productivity slowdown. The “productivity puzzle” therefore remains under both approaches, but it is smaller under the component approach framework. The component approach does not remove the post-GFC slowdown, but it suggests that part of the measured shortfall reflects labour input measurement, particularly the treatment of average actual hours worked.
Share 41m ago 09.56 BST Chart: UK productivity closer to pre-GFC trend This looks to be the key finding from the Office for Statistics’s new report into UK productivity: View image in fullscreen A chart showing UK output per hour Photograph: ONS It shows that under the ONS’s new approach, UK productivity is closer to its trend line before the global financial crisis (GFC) rocked the economy. In other worse, Britain’s productivity crisis has not been as severe as feared. One factor is that the ONS now believes the downward trend in average hours worked continued after the GFC (better late then never, I suppose!) The ONS says: double quotation mark Under the component approach, the distinction between the pre- and post-GFC trends are less pronounced. Growth still slows after the financial downturn, but the post-GFC trend lies closer to the earlier trajectory than under the current approach. Component output per hour also shows stronger post-crisis growth, increasing by 1.3% a year between 2009 and 2019, compared with 2.0% a year between 1997 and 2007. Share 55m ago 09.43 BST UK's economy more productive than previously thought Newsflash: Britain’s economy has been more productive since Tony Blair’s first election win than previously thought. A new measure of measuring productivity, just released by the Office for Statistics, shows that annual productivity growth since 1997 has been stronger than it had estimated in the past. The ONS now believes that output per hour was 40.7% higher in 2024 than in 1997 under its new “component approach”, compared with 34.0% under the previous methodology. This implies annual productivity growth of 1.3% since 1997, compared with 1.1% under the current approach (which is based on the ONS’s shonky Labour Force Survey). The new “component” approach introduces explicit adjustments for annual leave, sickness, bank holidays, furlough and overtime, while benchmarking hours worked to employer-reported data; it will replace existing UK labour productivity statistics, the ONS says. Interestingly, the new approach shows that between 2009 and 2019, output per hour worked has grown faster than previously estimated. Under the old approach, growth slowed to 0.7% – but the new component approach shows growth of 1.3% after the financial crisis. But output per job growth slowed to 1.0% a year under both approaches. Share Updated at 10.07 BST 1h ago 09.28 BST Long-dated UK government bond prices are flat this morning, ahead of the Bank of England’s decisions at noon. This leaves the yield on 30-year UK gilts unchanged at 5.85%, and the 10-year yield marginally higher at 5.301%. Both measures hit multi-year highs earlier this week. Share 2h ago 09.01 BST London stocks rise after Fed rate hike The London stock market has opened higher, as investors shrug off last night’s US interest rate rise.
The FTSE 100 share index has gained 82 points, or 0.8%, to 10,771 points. Although the Dow Jones industrial average of US stocks fell by 1.2% yesterday, the wider market reaction is quite subdued. Mark Haefele, chief investment officer at UBS Global Wealth Management, says: double quotation mark “We remain positioned for further equity gains while preparing for near-term volatility. If tightening remains measured, credit spreads remain stable, and profits continue to grow, the rally should have scope to broaden across sectors and regions. We recommend diversified equity exposure while avoiding excessive concentration in areas that are particularly sensitive to interest rates or rely on a single return driver.” Haefele also gives three reasons why markets might not be too rattled by the Fed: Much of the tightening is already priced in. Economic strength makes tightening more manageable. Strong earnings can counter higher yield Share 2h ago 08.18 BST There’s only a 20% chance that the Bank of England raises interest rates at noon today, according to the money markets. A hold – maintaining Bank rate at 3.75% – is an 80% shot. Share 2h ago 08.08 BST Next warns of UK slowdown despite lifting profit forecast In the City, shares in retail chain Next have jumped after it lifted its profit forecast again. Next cheered shareholders this morning by reporting it has increased its profit guidance for this financial year by £12m, to £1.255bn. The increase is the result of a small upgrade in sales expectations and some additional cost savings, mainly in warehousing, it said. This looks to be the fourth profit upgrade from Next this year. However… the company has also lowered its forecast for sales growth in the UK this year, down from +2.8% to +2.0%. Next predicts a slow, steady decline as the year progresses, and warns chancellor John Healey not to raise taxes in next month’s budget, saying: double quotation mark Our primary concerns are rising inflation, higher mortgage interest costs and a weak employment market. These worries will only be compounded if they are accompanied by tax increases. Next’s shares are up 3.2% to £150, putting it at the top of the FTSE 100 risers. Share 3h ago 07.50 BST Given high energy prices are driving up UK inflation, the Bank of England will not be pleased to hear the latest transit data from the Middle East. Commodity vessel transits through the strait of Hormuz dwindled to just three ships on Wednesday, down from 12 a day earlier. Although this exclude any vessels that might have passed through the waterway with their Automatic Identification System transponders turned off to avoid detection, it underlines that oil and gas flows from the Middle East are still badly affected by the Iran war.
Reuters has more details: double quotation mark Of the three vessels, an empty Supramax dry bulk ship entered the strait via the Iranian route, while an empty petroleum product tanker entered through a dark route, shipping data from Kpler showed at 0445 GMT. A Panamax tanker exited the waterway using a dark route, the data showed. Share 3h ago 07.43 BST Today’s interest rate decision comes at an increasingly difficult point for UK policymakers, says Daniela Hathorn, senior market analyst at Capital.com: double quotation mark This week’s data has painted a distinctly mixed picture: inflation is moving further above target and producer costs are accelerating, yet the labour market continues to soften. The result is an uncomfortable trade-off between guarding against a second inflation wave and avoiding unnecessary damage to an already fragile economy. Share 3h ago 07.40 BST QT explained Why is the Bank of England in the business of selling bonds anyway? In 2009 (after the financial crisis), the BoE began buying bonds with newly created money to push up their prices and bring down long-term interest rates. This process, called quantitative easing (QE) also aimed to support inflation and boost asset prices, and thus spur economic activity. After another burst of QE after the Covid-19 pandemic, the Bank build up its stock of bonds to £895bn. But it is now reversing that process, though QT. Quantitative tightening can be done through two ways – either selling a bond, or simply holding onto it until it matures, and then not reinvesting the money. Active bond sales have been criticised because the Bank is selling bonds for less than it paid for them. So, given QT pushes up government borrowing costs, and creates a loss for taxpayers, why do it at all? The Bank says: double quotation mark Unlike QE – which is used to reduce interest rates and therefore support inflation – the aim of QT is not to affect interest rates or inflation. Instead, the aim is to ensure that it is possible to undertake QE again in future, should that be needed to achieve the inflation target. There’s a full explanation here. Share 3h ago 07.22 BST Although the Bank of England may not raise rates today, money market pricing suggests borrowing costs are going to increase over the next year or so. As of last night, investors were pricing in four quarter-point increases by the end of 2027, which would lift Bank rate from 3.75% to 4.75%. Share
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