Daily Archives: June 20, 2012

Claire Jones

The average British worker is now producing far less wealth for the UK economy than before the crisis. And one of the questions puzzling economists at present is why — until recently — inflation has not fallen on the back of this drop in labour productivity, which tends to reflect weak demand.

That inflation has remained above the Bank’s target for two-and-a-half years despite the fall in productivity has led some economists, including a few members of the Monetary Policy Committee, to argue that the economy has suffered the ill-effects of a substantial supply shock and that workers will continue to contribute less to economic output for years to come.

If they’re right, then there is only so much that looser monetary policy can do to help solve the UK’s economic problems.

An article in the Bank of England’s latest quarterly bulletin, out on Wednesday, suggests the recent slump in workers’ productivity does indeed point to a slowdown in the growth of Britain’s supply potential, which represents the amount by which an economy can expand without stoking inflation. Read more