Productivity economic commentary, UK: April to June 2020

• Public service productivity decreased by 35.7% in Quarter 2 (Apr to June) 2020 compared with the same quarter a year ago; this fall was driven by an increase in inputs of 15.8% and a fall in output of 19.9%.

• Healthcare and social protection were the main drivers of the overall inputs growth, while the larger contributions to the output fall was observed in healthcare and education.

• Unit labour costs (ULCs) increased by 27.4% compared with the same quarter a year ago, easily the largest increase since records began.

This section presents experimental estimates for total public service productivity, inputs and output. These statistics provide a short-term, timely indicator of the future path for the National Statistics estimates of total public service productivity, which are produced with a two-year lag, but hold quality adjustment constant, as these data only arrive with a time lag. Data including quality adjustment for 2020 will be published in two years' time.

Compared with the same quarter in the previous year, productivity for total public services fell by 35.7% in Quarter 2 (Apr to June) 2020. Over this period, inputs increased by 15.8% while output fell by 19.9%, causing productivity to fall.

This is the largest fall in productivity since measurement began in 1997. The previous largest fall in productivity was 3.8% (revised from the previous experimental publication) in Quarter 1 (Jan to Mar) 2020, at the beginning of the coronavirus (COVID-19) pandemic and nationwide UK lockdown.

As inputs growth has a negative effect on productivity growth, Figure 1 inverts the growth rates of inputs. As such, the sum of the stacked bars (inverted inputs and output) is equal to productivity growth.

An increase in healthcare and social protection expenditure was the main source of total inputs growth, whereas a fall in healthcare and education output was the main cause of the fall in total output.

The increase in inputs likely reflects government procurement of personal protective equipment (PPE) and construction of Nightingale hospitals as well as the additional social care responsibilities taken on by local government in response to the coronavirus pandemic.

An adjustment to our education output measurement methodology was introduced to take into consideration the widespread school closures from March onwards and the shift to "remote learning". This resulted in a decrease in our education output measures. The fall in healthcare output reflects the reductions in the number of GP appointments, accident and emergency admissions, non-emergency surgeries and outpatient activities, and the cancellation of all but emergency dental and ophthalmic treatment, as discussed in a previous publication. To guarantee the quality of the current and future data, the Office for National Statistics (ONS) is working closely with the NHS.

Figure 2 describes the comparison with the previous quarter. Quarterly public service productivity fell by 31.8% in Quarter 2 (Apr to June) 2020 compared with Quarter 1 (Jan to Mar) 2020. The steep decline in productivity in Quarter 1 and Quarter 2 is unprecedented and suggests the coronavirus pandemic and nationwide UK lockdown will have a significant impact on the annual estimate for 2020.

Figure 3 shows total public service productivity in the context of a longer time series. Our forecast of annual productivity shows that productivity fell by 0.1% in 2018 and grew by 0.2% in 2019. These estimates contain revisions compared with the previous publication, where productivity was estimated to have increased in 2018 and decreased in 2019. These revisions reflect more up-to-date inputs and output data including revisions to Blue Book 2020-consistent gross value added (GVA) data as published in GDP quarterly national accounts, UK: April to June 2020; these revisions affect all time periods.

Because of the impact of the coronavirus on the availability of data and on our methodology, it is probable that there will be further revisions to our estimates for recent quarters. However, we are working with our data suppliers to ensure the provision of our current and future data needs and will fully explain the impact that any revision might have on our estimates.

On 8 January 2021, the ONS will publish updated estimates of annual public service productivity. In the previous two years, the ONS has published separate analytical articles for the UK and England series of the healthcare sector of public service productivity. From January 2021, commentary in Public service productivity: healthcare will focus on the England financial year series, and there will not be a separate article analysing these series for the UK on a calendar year basis. This change has been made as commentary on the UK series typically focused on the data series from England, because of England accounting for the large majority of the inputs and output series for the UK. However, all UK data series previously produced in Public service productivity: healthcare, UK: 2017 will continue to be available to users in the datasets accompanying the public service productivity release.

Unit labour costs (ULCs) capture the full costs of labour incurred in the production of a unit of economic output; they reflect the relationship between the cost of labour and the value of the corresponding output. If increases in labour costs are not reflected in the volume of output, this can put upward pressure on the prices of goods and services. Hence, ULCs are a closely watched indicator of domestically generated inflationary pressure in the economy. They are usually expressed as a ratio of the total labour compensation per hour worked, to the output per hour worked.

In Quarter 2 (Apr to June) 2020, ULCs increased by 27.4% compared with the same quarter in the previous year. This is the greatest change in ULCs since records began.

The increase was driven by a fall in gross value added (GVA) over the quarter. During lockdown, government programmes for furloughed workers have helped keep labour costs elevated despite the fall in production activities. This has also had a notable effect on ULCs this period.

Since the start of 2020, ULCs have increased by 25.7%. The last two quarters of volatility follow a period of fairly stable ULCs growth, which has occurred since Quarter 2 2016. Prior to this, ULCs growth had been volatile.

Information on data used in public service productivity can be found in our previous release and in Sources and methods for public service productivity estimates.

The datasets accompanying this release incorporate revisions to Blue Book 2020-consistent gross domestic product (GDP) as published in GDP quarterly national accounts, UK: April to June 2020; these revisions affect all time periods.