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Saturday, September 23, 2017

Productivity
Opinion > Hampshire Trust Bank

Solving the productivity puzzle

Mark Sismey-Durrant, chief executive officer at Hampshire Trust Bank | 16:52 Wednesday 6th September 2017

We hear a great deal of commentary on the fall in UK labour productivity levels and the impact this could have on longer-term gross domestic product (GDP) growth.

So why are productivity levels dropping when according to the latest Office of National Statistics (ONS) figures GDP has increased, albeit marginally, and how can specialist banks play a part in boosting activity levels?

Productivity fell by 0.1% in Q2 2017, according to the ONS UK productivity flash estimate. Interestingly, the drop was the result of slower gross value-added growth relative to the increase in total hours worked, predominantly driven by an increase in employment levels. In other words, as the ONS states, total hours worked grew faster than output.

However, the stagnation in productivity that has persisted since the financial crisis continues to puzzle economists. According to government research on productivity, a number of theories have emerged to try to explain this, including a weakness in investment, slowing levels of innovation and a lack of bank lending to more productive firms.

Working in the financial services industry, we are, of course, particularly interested in how lending levels can impact on productivity. In a speech earlier this year at the London School of Economics, Andrew G Haldane, chief economist at the Bank of England, said that one impact of a financial crisis could be “a collapse in credit availability” which “is likely to constrict the financing of both new and existing companies and hence constrain their investment plans”. However, he then went on to say that as credit conditions have eased recently “this has become a less compelling explanation for persisting productivity problems”.

So, the question remains: how can we help solve the productivity problem?

We believe that UK small- and medium-sized enterprises (SMEs) have a key role to play. Specialist banks support British businesses and are particularly focused on helping SMEs to continue to do what they do best — drive economic growth — and we believe that this role will become increasingly important in the years ahead.

Indeed, our SME Growth Watch research revealed that SMEs in the top 10 cities in the UK are forecast to contribute £217bn to the UK economy by 2020, an 11% increase compared with levels in 2015 (£196bn).

In order to achieve this forecasted growth, specialist banks must keep on lending to businesses in their chosen sectors. Making finance available can help boost future business growth and by enabling SMEs to increase investment in people, research and innovation, ultimately fuelling productivity and UK economic success. We believe that by working together we can take steps to help solve the productivity problem.

 

 

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