U.K. Productivity Worst Since Industrial Revolution, BOE Says
(Bloomberg) -- Britons were only beginning to use steam engines, canals and factories the last time the U.K. experienced such a poor decade of productivity.
Total factor productivity since 2007 was the worst since the late eighteenth century, around the time of the industrial revolution, according to a Bank of England blog post Wednesday.
Average productivity growth was negative for the first time in almost a century, BOE researcher John Lewis said.
“Whatever the cause, productivity growth over the past decade has been remarkably poor by most historical standards,” he said.
Output per worker in the U.K. has failed to recover its pre-crisis trend, eating into the economy’s potential growth rate. Possible explanations include the U.K.’s current reliance on services, which lag manufacturing in terms of efficiency growth, “zombie” firms that have been kept alive by loose monetary policy, and limits in the flow of people between companies.
Poor productivity also explains why pay has remained subdued, despite the lowest unemployment in more than four decades. BOE Governor Mark Carney said in 2016 that real wage growth over the previous decade was the slowest since the mid-nineteenth century.
While productivity growth picked up in the second half of 2017, officials at the BOE and the Treasury urge caution. Some economists say Brexit could exacerbate the problem, since reducing trade with the European Union risks curbing productivity-enhancing innovation and investment.
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