Just two sectors of the economy – financial services and manufacturing – are responsible for sluggish productivity growth in the UK economy, according to Silvana Tenreyro, the newest member of the Bank of England’s Monetary Policy Committee.
In her maiden speech, Professor Tenreyro said that productivity is likely to improve due to faster global growth and increased demand for goods and services. She was speaking at the annual Peston Lecture, organised by the School of Economics and Finance at Queen Mary University of London.
“The big question is the timing for that catch-up. The global economy and Europe in particular are undergoing a big investment boom, yet the UK is not part of it,” said Professor Tenreyro.
She said that uncertainty regarding Brexit and the nature of future trade deals is making it more difficult for the UK to keep pace with other advanced economies.
“Why is the UK the odd one out? The likely culprit is the uncertainty regarding future EU trading relations, which many have argued, and I agree, is keeping the levels of domestic and foreign investment in the country relatively low in relation to what one would expect at this stage of the global cycle. We will have to live with some of that uncertainty for some time. And, understandably, firms will postpone some of the investments and structural changes needed to increase productivity.”
She said that the Bank of England has “ample time” before it needs to consider raising interest rates, after its first hike in more than a decade in November 2017.
“In December, with unit labour cost growth still subdued and inflation likely to be around its peak, my view was that there was ample time for us to continue to monitor the transmission of the November policy change before voting for another change in interest rates,” she said.
Maurice Peston's academic work was concentrated in macroeconomics, public economics, and analysis of the British economy. His policy work included membership of the House of Lords Select Committee on Nationalised Industries, advisory roles in various government departments over a period of four decades, and chairmanship of the House of Lords Committee on Economic Affairs.
In recognition and now in memory of Lord Peston and his contributions to Queen Mary, the School hosts the annual Peston Lecture, focusing on the interface between economics and public policy. Speakers in the series have included Mark Carney, David Currie, Charles Goodhart, Richard Lipsey, Robert Peston, and Martin Weale.
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