Understanding UK Productivity Using a Macroeconomic Lens

Abstract

ABSTRACT We survey UK labor productivity over the long run, comparing it with other advanced economies, and focus on the sharp slowdown since the global financial crisis. Using a growth accounting framework, we highlight the primary role of total factor productivity (TFP), while noting that the contribution of capital shallowing is influenced by methodological choices. We assess the UK's productivity performance through standard neoclassical models and revisit the secular stagnation debate. Long‐term trends, including a 30‐year decline in real interest rates and increased labor supply since 2008 ought to have spurred investment, and yet private and public investment as a share of GDP has declined. The economic literature points to poor TFP growth, government decisions on public investment, flexible labor supply, heightened uncertainty and the distortion of investment decisions in an era of ultra‐low interest rates as probable culprits behind the disappointing investment trends.