Bank of England 'puzzled' by productivity gap

The Bank of England says productivity is 16% below its pre-crisis trend - but says it is at a loss to understand why.

Its latest quarterly bulletin says that since the onset of the 2007-08 financial crisis, labour productivity in the UK has been exceptionally weak.

It records some "modest" improvements in 2013. However, it says even taking into account possible measurement issues, this shortfall is large and is often called the "productivity puzzle".

Interest rates

Measures of productivity, essentially the quantity of goods and services produced per worker or per hour, can be used to inform estimates of an economy's ability to grow without generating too much inflation.

It is an important factor for the Bank of England to consider when making interest rate decisions as it helps it to forecast inflation.

The Bank's governor, Mark Carney, warned last week that interest rates would rise sooner than expected, a move that assumes post-crisis slack is being taken up.

The UK is known to be less productive than other similar developed countries.

Earlier this month the International Monetary Fund (IMF) said poor productivity in the UK was a key risk to future economic health, along with a housing market that is overheating in some areas.

The UK has seen an improvement in output, but productivity has failed to rise in tandem - creating the "productivity gap" - and is below that of other developed countries.

British workers now produce about a fifth less for every hour worked than other leading G7 nations.