LONDON (Reuters) - Signs that Britain’s economic upturn will soon end years of poor productivity growth are tenuous at best, which could mean interest rates will need to rise, Bank of England policymaker Martin Weale said on Monday.
Weak productivity has been a major problem for Britain since the financial crisis, and the economic recovery has not led it to pick up as much as the BoE had expected, potentially weighing on how much Britons can expect to earn in the future.
Weale said Britain’s productivity problem should be seen in an international context because many advanced economies have seen productivity growth deteriorate since the crisis, which is still “casting a long shadow”.
He gave no hint that he was about to change his mind that interest rates should rise from record low levels -- a minority view among members of the Monetary Policy Committee (MPC).
“It may well be sensible for the MPC to take an optimistic stance, partly on the grounds that brisk demand growth will pull productivity up by its own bootstraps, but the evidence for this is at best tenuous,” he said in a speech to the Mile End Group at Queen Mary University in London.
Weale said persistently slower productivity growth would mean interest rates would need to be higher in the short-term to prevent demand running ahead of supply.
But because poor productivity would result in weaker underlying growth, rates might still remain lower than they were before the crisis.
“The MPC does not have the luxury of being able to wait for the fog of uncertainty over productivity growth to clear up,” Weale said.
The BoE said last month it expected productivity to pick up more slowly than it forecast in May, although it still foresaw a “gradual revival” in productivity growth.
Of the MPC’s nine members, only Weale and Ian McCafferty have voted in recent months to raise interest rates from their record low 0.5 percent -- their level for almost six years.
Minutes of last month’s meeting showed, however, that some of the seven members who have been voting to keep rates on hold were increasingly worried about inflation risks.
Minutes of the MPC’s December meeting will be published on Dec. 17.
Reporting by Andy Bruce; Editing by Catherine Evans