The Bank of England’s remit should be overhauled to include a 3 percent target for productivity growth, according to a report commissioned by the UK’s opposition Labour Party.
The central bank should also have its toolkit expanded to include credit guidance and greater use of macro-prudential policy, said the study, led by GFC Economics’ Graham Turner. The proposals, for consideration in Labour’s policy review ahead of the next election, recommend that the BOE should keep its independence, and that it should open an office in Birmingham.
Poor productivity has dogged the UK economy for years, leaving policy makers struggling to explain the puzzle of why output per hour has failed to return to its pre-crisis growth rate. It’s a crucial topic for BOE officials, since the trend means the economy has less room to grow without generating inflation than it did in the past.
In a report in April, ONS deputy chief economist Richard Heys said output per hour rose just 1 percent in 2017, half the historic average rate. That left productivity more than 16 percent below its pre-crisis trend.