UK productivity may beat forecasts, says Bank of England’s Silvana Tenreyro
16 January 2018
Silvana Tenreyro, Monetary Policy Committee Member, Bank of England, delivered the Peston Lecture 2018 on Monday 15th January 2018.
In her maiden speech, Professor Tenreyro discussed productivity growth in the UK economy. Productivity is a key input for monetary policymakers as it tells them how much the economy can grow without generating inflation. Since the crisis, the UK labour productivity growth has fallen, both compared to its previous trend, and relative to productivity growth in our international peers.
The lecture revisits this "productivity puzzle" using the latest data. It highlights three results. First, just two sectors, finance and manufacturing, can account for most of the fall in UK aggregate productivity growth. Second, looking in detail at these two sectors, the post-crisis productivity drag from finance should disappear as deleveraging runs its course. Slower manufacturing productivity growth, meanwhile, may relate to a reduction in the impact of lower-priced imported inputs from China and other emerging markets. And third, persistently weak investment has also been playing an increasingly important role in the weakness of manufacturing and aggregate productivity.
Looking ahead, strong global growth should help support a recovery in investment that could help productivity growth. There is also significant scope for the UK to catch up with the frontier. So although a return to pre-crisis rates of productivity growth is unlikely, Silvana is optimistic that it will recover to rates above its weak, post-crisis average.
Silvana’s PowerPoint: Peston Lecture 2018 - Silvana Tenreyro slides [PDF 622KB].
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