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Bank of England 'puzzled' by productivity gap Bank of England 'puzzled' by productivity gap
(about 11 hours later)
The Bank of England says productivity is 16% below its pre-crisis trend - but says it is at a loss to understand why.The Bank of England says productivity is 16% below its pre-crisis trend - but says it is at a loss to understand why.
Its latest quarterly bulletin says that since the onset of the 2007-08 financial crisis, labour productivity in the UK has been exceptionally weak.Its latest quarterly bulletin says that since the onset of the 2007-08 financial crisis, labour productivity in the UK has been exceptionally weak.
It records some "modest" improvements in 2013.It records some "modest" improvements in 2013.
However, it says even taking into account possible measurement issues, this shortfall is large and is often called the "productivity puzzle".However, it says even taking into account possible measurement issues, this shortfall is large and is often called the "productivity puzzle".
Measures of productivity can be used to inform estimates of an economy's ability to grow without generating too much inflation. Measures of productivity, essentially the quantity of goods and services produced per worker or per hour, can be used to inform estimates of an economy's ability to grow without generating too much inflation.
The productivity shortfall suggests inflation will not present a major threat as production rises, and therefore does not, in itself, present a pressing need to raise interest rates. Yet even though the UK has seen an improvement in output, productivity has failed to rise in tandem 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.
Productivity is an important factor for the Bank of England to consider when it makes interest rate decisions as it helps it to forecast inflation.
ShortfallShortfall
The Bank says a key challenge has been to understand better how much of the weakness in productivity has been due to weak demand compared with problems generated by the financial crisis.The Bank says a key challenge has been to understand better how much of the weakness in productivity has been due to weak demand compared with problems generated by the financial crisis.
It says 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.It says 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.
But there remains a large degree of uncertainty around any interpretation of the weakness in productivity.But there remains a large degree of uncertainty around any interpretation of the weakness in productivity.
In its May 2014 inflation report, the Bank predicted productivity growth would pick up gradually as the recovery progressed, but said it would still remain "well below" its pre-crisis trend.