UK’s low interest rates hurt productivity, says BoE’s economist

Economy - Poorva Sundriyal - Mar 21,2017

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uks low interest rates hurt productivity says boes economist

Ultra low interest rate has taken over the productivity in the UK but is the price worth paying to curb higher unemployment, says economist Andy Haldane.

Low-interest rates for the banks in the UK since the financial crisis has impacted productivity but were the price worth paying to avoid higher unemployment, said Bank of England chief economist Andy Haldane on Monday.    

The firms were functioning at a low-interest rate keeping people employed, since a lesser interest rate of 0.25 % kept 1.5 million jobs intact, said Andy during his speech at London School of Economics.

He further added, the tradeoff is continuously low due to low interest but we can’t risk millions of jobs for 1 or 2 % extra productivity.

Low-interest rate had been one of the primary reasons which kept some of the severely indebted businesses breathing, however, if the interest rate was 4.25% since 2008 the productivity would have surged by 1-3%.

Haldane said, a higher interest rate would have imposed “very significant macroeconomic cost” when it focused on unemployment.

The economist questioned the deeds of the monetary policymakers; he stressed on the fact that, in reality, they wouldn’t have actually sacrificed 1.5 million jobs to gain an extra 1 to 3 percent productivity.

Haldane also offered a cure which highlighted exports and foreign ownership of companies which might tend to boost productivity. He further pointed to the wide divergence between Britain’s most productive and least productive businesses and suggested a mentoring scheme between them, to share best practices.

The expert recommended a focus on company productivity and performance which will serve as a catalyst for remedial action by company management. Hence, the aim here is not just to benchmark the company performance but providing tools to improve performance along identified areas.