BoE: U.K. productivity well below pre-crisis levels

The Bank of England said in its quarterly bulletin that it is puzzled why at 16% productivity is well below pre-crisis levels.

The BoE that since the onset of the 200708 financial crisis, labour productivity in the UK has been exceptionally weak despite recording some “modest” improvements in 2013.

However, it said that even taking into account possible measurement issues, this shortfall is large and is often called the “productivity puzzle”. One reason for the fall is that during the initial phases of the recession, companies appear to have kept on workers, despite a fall in demand.

A more extreme example of this is that firms which are really struggling are being kept afloat by their banks, so called Zombie firms.

Productivity is an important factor for the Bank of England to consider when making interest rate decisions as it helps it to forecast inflation.

The UK central bank’s governor, Mark Carney, warned last week that interest rates would rise sooner than expected, a move that assumes post-crisis slack is being taken up.

Earlier this month, the IMF said poor productivity in the UK – often below levels of other developed countries – was a key risk to future economic health, along with a housing market that is overheating in some areas.

The UK has seen an improvement in output, but productivity has failed to rise in tandem - creating the “productivity gap” - and is below that of other developed countries.

British workers now produce about a fifth less for every hour worked than other leading G7 nations.