26 June 2018

Financial Times: Brexit to hold back productivity, says MPC member

Britain’s near-stagnant productivity is the main reason why BoE policymakers believe the economy can no longer grow as fast as in the past without fuelling inflation.

Labour productivity growth has weakened since the global financial crisis across the developed world, but the problem is particularly acute in the UK, where annual growth in output per hour has fallen from a pre-crisis average of 2.2 per cent to just 0.5 per cent in the period since 2010.

This reflects the fact that employment growth has been strong, but the majority of new jobs have been in areas with relatively low productivity, the OECD said on Tuesday.

The BoE believes about half of the weakness since 2010 is due to slowing capital investment, with the remainder down to less efficient use of labour and capital.

Mr McCafferty said the slowdown had been concentrated in the financial sector, where pre-crisis practices proved unsustainable, and in manufacturing, which had been affected by a slowdown in global trade.

Some of these problems were now dissipating, he said, but added that “another set of factors is likely to hold back productivity growth in coming years — the transition to Brexit and, were they to materialise, less open trade and investment arrangements after Brexit”.

Until the final terms of Brexit are known, uncertainty will lead companies to put investments on hold. Once they are agreed, the resulting reallocation of resources will hold back productivity growth “until the new trading and production patterns are in place,” he said. [...]

Full article on Financial Times (subscription required)

Changing times, changing norms - speech by Ian McCafferty

Related: OECD: Low productivity jobs driving employment growth in many OECD countries

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