The UK Productivity “Puzzle” in an International Comparative Perspective

John Fernald and Robert Inklaar

Oxford Bulletin of Economics and Statistics, 2025, vol. 87, issue 4, 691-710

Abstract: The UK's slow productivity growth since 2007 has been referred to as a “puzzle,” as if it were a particularly UK‐specific problem. We highlight how the United States and northern Europe experienced very similar slowdowns. In all three regions, the slowdown in total factor productivity (TFP) growth accounts for the slowdown in labor productivity growth. We find no evidence in capital‐output ratios, investment rates, or internal rates of return that something substantive changed in the capital‐formation process after 2007—other than a slowdown in TFP and output growth that induced slower capital formation. Hence, capital formation is not an important independent factor in the post‐2007 productivity slowdown. For the UK, weak investment is a longstanding concern going back to the 1990s, though considerations of non‐national accounts intangible assets somewhat ameliorate the investment shortfalls. The common slowdown in TFP growth is fairly broad‐based across industry groups. Industry‐specific issues, such as in mining, account for some of relative ground lost after 2007 rather than indicating a systematic UK competitiveness problem.

Date: 2025
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