Mixed news on productivity and wage costs underlines policy challenge to Darling

Dr John Philpott, Chief Economist at the Chartered Institute of Personnel and Development (CIPD), comments on the productivity and unit wage cost figures for the first quarter published today by the Office for National Statistics (ONS).

Philpott says: ìOn the face of things the latest productivity figures should be welcome news to Alastair Darling as he begins his first full week as Chancellor of the Exchequer. However, the improvement in output per worker is due to slower employment growth. The amount UK workers produce per hour has remained broadly stable since the middle of 2006, having recovered from the productivity slump of 2005, and there is still no sign of an improvement in the underlying trend rate of productivity growth. Boosting the underlying rate to close the hourly productivity gap with the United States, France and Germany thus remains the most pressing long-term economic policy challenge facing the new Government and the new Chancellor.

ìThe Monetary Policy Committee (MPC) may also be concerned about the recorded rise in unit labour costs which indicates that underlying cost pressure in the labour market increased in the first quarter despite relatively modest pay settlements. While the unit labour cost figures are unlikely to be a clincher for the MPC when it makes it next decision on interest rates they may strengthen the hawkish case for a rate hike.î