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

Financial Mirror (Cyprus) - - FRONT PAGE -

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.

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