According to Resolution Foundation, London has become the heart of Britain’s productivity problems. The country’s capital has gone down in productivity by 1 percent as compared to the improvement which can be seen by 1.5% at the national level. The report published by resolution foundation said it on Wednesday.
The reports also indicate the underlying the problem which is the ‘expansion driven by rising employment and working hours’ rather than efficiency improvement.
London the richest city of the United Kingdom in terms of business is actually holding the country back in productivity, a senior economic analyst at resolution foundation, Stephen Clarke said in a statement.
Hospitality sector in London is gradually replacing the banking sector as a big growth sector, traditionally London’s productivity growth was powered by finance and IT as the main growth sectors, he added.
UK’s sluggish productivity growth has troubled policy an lawmakers for years, the major growth restricting factors include low borrowing costs that keep some firms alive, reliance on services sector rather than manufacturing, limit in the flow of people between companies.
According to Richard Heys, deputy chief economist at the Office for National Statistics said in a report published in April that output per hour rose just 1 percent in the last year which is half of the historic average rate. This leaves the productivity almost 16 percent lower to its pre-crisis trend.
In the same report, it was claimed that London’s finance industry has been declining seriously; the research also mentioned that traditionally efficient sectors such as professional services have been pulling the productivity down. However, increase in employment was driven by the low-paying sectors such as administrative services and hospitality, the report said.
Labor Party urged that the Bank of England’s remit should be overhauled focusing on 3 percent improvement for productivity growth, however, economists say the policy matters are discussed and implemented in the parliament, not the central bank.
The report also highlighted the skyrocketing housing costs and weak income growth lead to the exodus of Londoners in the early 30s. Last year, London has witnessed the largest movement out of the capital since 2004, more people preferred to leave London rather getting footholds for their future generations.