Is productivity really being measured in the right way?

“UK SME confidence remains optimistic but there are economic challenges ahead.”

So says behavioural economist and Vistage Speaker Roger Martin-Fagg in his January 2024 Economic Update for Vistage. Download the report in full here – or read on for our summary…

Are traditional measures of productivity still valid? 

Roger is expecting much media talk about UK productivity levels in the coming months. However, he also expects much of this coverage to be ill-informed.

When productivity measures were initially developed over 100 years ago, they were built around the performance of machines. The world, however, has changed. 

Reducing input and increasing output may still work as productivity measures for some industries and businesses, but by no means all. These metrics alone don’t necessarily result in more effective outcomes – and Roger gives examples in his January 2024 update. 

If you measure productivity as one of your KPIs, says Roger, “choose a metric which works for you and is clearly understood by your employees”. 

SME owners should identify the inputs and outputs that reflect their business goals. These should be measured in the most appropriate timeframes – and it may be that you use different productivity metrics for various elements of your business. 

Because productivity can be measured in so many different ways, how can we be sure that comparisons reported in the media are, indeed, accurate? 

The UK economy in the next 24 months

With negative money supply growth, Roger believes that there is no case for further increases in interest rates as things stand. In fact, he believes that rates will drop by 0.25% by the end of the year, keeping inflation at 4% by December 2024. This, he says, is dependent on a 1% increase in productivity levels as currently measured. 

Predictions, however, depend on the date of the next General Election – and its results. In his full report, Roger talks of the possibility of a Labour government adopting the averaging approach to inflation, meaning that interest rates could be reduced even when inflation is above its target level. 

Even with a change in government, he predicts growth of no more than 1% in real terms. Should all of this happen, he suggests that the CPI – which includes food and energy – could actually be slightly lower than in 2023.

What about the rest of the world?

Roger points to a number of factors that could impact the global economy over the coming years. Deflation in China, the possibility of Trump becoming US President once again, and a continuing fall in global commodity prices are all expected to have a part to play. Uncertainty in the Middle East may impact energy prices, while it remains to be seen what impact the drought in Panama will continue to have on ship movements. 

Overall, Roger believes that 2024 will feel much like 2023 in many ways. However, he believes that this year could see the start of the long journey towards a 2.5%pa real growth rate – a rate we have not seen since pre-2008. For this to happen, there’s no denying that the UK’s SMEs have their role to play. 
To read Roger’s latest report in full, click here.

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