Report shows hiring intentions strong but productivity puzzle continues

By Anita Jaynes on 16 April, 2015

Business’ hiring intentions are at ‘sky-high’ levels with figures stronger than the heady days of the mid 2000s boom, according to the latest Business Trends Report by Bristol-based accountants and business advisers BDO LLP.

With BDO’s Employment Index measuring 113.0 – well above its long-term trend – the suggestion is that UK firms will continue to boost job creation in the coming months.

However there are still big areas of concern for the economy. The UK continues its puzzling failure to increase productivity, despite continuing strong economic expansion.

Workers’ output per hour has been static during the last two years of the recovery.  Such a long period of flat productivity is unprecedented in the period since World War II and the trend is unique amongst advanced economies.

Despite this negative trend, BDO’s Output and Optimism Indices, which predict economic growth three and six months ahead respectively, remain significantly above the 100 mark, which indicates growth above the long-term trend. The Output Index rose to 103.9 in March while the Optimism Index held firm at 104.9, revealing business confidence to be at levels not seen since summer 2014.  Firms have been given an additional boost as input costs continue to fall, with BDO’s Inflation Index sitting at just 93.8 (down from 94.7 last month), indicating deflation.

Commenting on the findings, Andrea Bishop, audit partner and head of BDO LLP in Bristol, said: “While it is encouraging to see strong business confidence, the 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.  Productivity ultimately determines our prosperity so it is a crucial area that must be addressed.  Policymakers of all persuasion must take on this productivity puzzle.”

Pictured above: Andrea Bishop audit partner and head of BDO LLP in Bristol