UK Low Productivity Unexplained by BOE

The Bank of England has admitted that it cannot explain the “puzzle” of weak levels of U.K. productivity — an important measure in determining when interest rates could start rising – while other indicators such as employment and economic output seem to be doing so well.

Productivity remains around 4 percent below pre-crisis levels, the Bank of England said, and 16 percent below levels it should be at had the pre-crisis trend continued.

Defined as the quantity of goods and services produced per worker or per hour, labor productivity is a key measure to determine the health of an economy.

The BoE paper, published in the central bank’s quarterly bulletin of economic research said since the onset of the 2007–08 financial crisis, labor productivity in the U.K. had been “exceptionally weak”.

“The fall in labor productivity during the recent recession has been larger than in any other post-war recession,” the paper found.

Nonetheless there are other indicators that the U.K economy was improving. The National Institute of Economic and Social Research forecast last week that the U.K. economy grew by 0.9 percent in the three months ending in May after growth of 1.1 percent in the three months ending in April 2014. That suggests U.K. GDP has surpassed the level pre-recession peak.

via CNBC

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Alfonso Esparza

Alfonso Esparza

Senior Currency Analyst at Market Pulse
Alfonso Esparza specializes in macro forex strategies for North American and major currency pairs. Upon joining OANDA in 2007, Alfonso Esparza established the MarketPulseFX blog and he has since written extensively about central banks and global economic and political trends. Alfonso has also worked as a professional currency
trader focused on North America and emerging markets. He has been published by The MarketWatch, Reuters, the Wall Street Journal and The Globe and Mail, and he also appears regularly as a guest commentator on networks including Bloomberg and BNN. He holds a finance degree from the Monterrey Institute of Technology and Higher Education (ITESM) and an MBA with a specialization on financial engineering and marketing from the University of Toronto.
Alfonso Esparza