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Productivity gap leaves Bank of England “Puzzled”


The Bank of England has admitted it cannot explain why productivity is 16% less than before the 2007/08 financial crisis.

They said in their latest quarterly bulletin that despite “modest” improvements in 2013, productivity in the UK has been exceptionally weak.

It said that one possible reason for the shortfall could be that some companies retained workers throughout the recession – despite a reduction in overall demand.

However, the Bank said that even when taking into account factors such as measurement issues, they have been unable to explain what they call the “productivity puzzle”.

They also moved to quash any fears that interest levels will need to be increased drastically to correct the shortfall, this is because the figures suggest that inflation will not affect the economy too much as production rises.


Productivity levels are calculated by taking the amount of goods and services produced in the economy and dividing it by the number of hours worked.

This is then compared to other countries economies, with the UK economy struggling to compete with its competitors at the moment.

The Bank has stated that their next key challenge is to understand the links to weak productivity, as there remains a large degree of uncertainty over the underlying issues.

This will include analysing how much of the shortfall has been a result of weak demand as opposed to problems created by the financial crisis.

It is important to understand these issues because measures of productivity can provide insight into how much the economy can grow without creating too much inflation. Additionally, some UK analysts actually believe that low wage growth in the UK is a result of poor productivity levels.

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