Britain's Productivity Puzzle

Why UK productivity growth slowed sharply after 2008, the possible explanations, and why productivity matters for wages.

Since the 2008 financial crisis, UK productivity growth has been weak.

The puzzle

Before 2008, UK productivity grew around 2 percent a year. Since then, growth has averaged well under 1 percent, a much sharper slowdown than in many peers.

Why it matters

Productivity drives wages. Weak productivity means slow growth in real pay, and UK real wages were broadly flat for more than a decade after 2008.

Possible explanations

Low business investment, worsened by Brexit uncertainty.
Finance sector shrinking after being a big driver of pre-2008 growth.
Zombie firms kept alive by low interest rates.
Weak infrastructure and planning restrictions on building.
Regional gaps: cities outside London have low productivity compared with peers abroad.
Skills gaps.

Housing and planning

Economists argue Britain’s strict planning system limits building homes, labs and infrastructure, holding back growth.

Policy responses

Governments have proposed planning reform, infrastructure spending and investment incentives.

The flat pay packet

A British worker in 2019 earned roughly the same in real terms as a similar worker in 2007, a rare decade of stagnant pay.

Thinking productivity is only about working harder

It depends on investment, technology, skills and infrastructure.

Key takeaways

UK productivity growth slowed sharply after 2008.
Weak productivity kept real wages flat.
Low investment, zombie firms and planning restrictions are cited.
Planning reform and investment aim to help.