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.
SIGN UP TO OUR NEWSLETTER TO RECEIVE MORE NEWS LIKE THIS STORY
Development Bank of Wales provides £500,000 to IT repairs business
Comtek Network Systems UK Limited has secured £500,000 of investment from the Development Bank of Wales
Wesleyan Bank names new director
Wesleyan Bank has strengthened its management team with the appointment of Simon Welling (pictured above) as its director of sales and marketing.
Cash Isa savers missing out on transfer market
Half of cash Isa savers aged 55-plus (50%) have never moved their accounts to another provider, according to a new study.
CivilisedBank secures further funding
CivilisedBank is set to receive further funding from current investor Warwick Capital Partners, subject to regulatory approval.
A round-up of the latest specialist banking products
With the continuing expansion of the specialist banking market, this year promises to bring a host of new products and services to the sector.
Hanley Economic BS rebrands
Hanley Economic Building Society has rebranded as it launches its first ever TV advertising campaign.
Lydia raises a further €13m
Lydia has announced that it has raised a further €13m, taking the total amount raised by the French fintech start-up to over €23m.
Fintech as a force for good
The big news around fintech focuses on the many ways it is already making financial services more profitable, more scalable, more secure and more user-friendly.
FIBA commits to 30 events
The Financial Intermediary & Broker Association (FIBA) has announced 30 regional meetings for its members and intermediaries interested in joining the Association.
20% of brands to abandon their mobile apps by 2019
A fifth of brands will abandon their mobile apps by 2019 due to a lack of adoption and customer engagement, according to a study by research and advisory company Gartner.