Since the crash Britain has lost years in all-important productivity growth—but a revival will come sooner or laterby George Magnus / April 3, 2018 / Leave a comment
Productivity is the holy grail. It drives wages, consumption and general standards of health and welfare. Without productivity growth, living standards might not be that different from what they were in late Victorian times. It is the key to managing an ageing society successfully, and for Brexit Britain, it is the only way to limit the damage caused by leaving the European Union. Productivity, or rather the lack of it, is a fundamental reason for disappointing economic and social conditions since the financial crisis. Yet, there is still no consensus about why productivity is down and out, or how to fix it. Could we be looking around the wrong corner?
In the decade before the financial crisis, UK productivity growth was recorded at 2 per cent per year. Since the ensuing recession, it has been growing sluggishly at about 0.5 per cent per year. To emphasise what this means cumulatively, if productivity had continued to grow on trend after 2007, it would now be about 20 per cent higher than it is. That is the scale of what economists call our “lost decade” since the crisis.