(Bloomberg) -- The Bank of England’s remit should be overhauled to include a 3 percent target for productivity growth, according to a report commissioned by the U.K.’s opposition Labour Party.
The central bank should also have its toolkit expanded to include credit guidance and greater use of macro-prudential policy, said the study, led by GFC Economics’ Graham Turner. The proposals, for consideration in Labour’s policy review ahead of the next election, recommend that the BOE should keep its independence, and that it should open an office in Birmingham.
Poor productivity has dogged the U.K. economy for years, leaving policy makers struggling to explain the puzzle of why output per hour has failed to return to its pre-crisis growth rate. It’s a crucial topic for BOE officials, since the trend means the economy has less room to grow without generating inflation than it did in the past.
In a report in April, ONS deputy chief economist Richard Heys said output per hour rose just 1 percent in 2017, half the historic average rate. That left productivity more than 16 percent below its pre-crisis trend.
The Labour-commissioned report recommended that the BOE should sign an accord with the government detailing how each will work toward achieving the 3 percent target, and be required to report after each budget.
The BOE’s current remit is to target inflation of 2 percent. Labour’s finance spokesman, John McDonnell, said in April that he was “quite attracted” by the U.S. Federal Reserve’s dual mandate for stable inflation at 2 percent and maximum employment. McDonnell is due to speak at the launch of the report at an event in London on Wednesday.
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