Online shopping and working from home may give a much-needed jolt to the U.K. economy, boosting productivity that has for decades been stagnant, a Bank of England policy maker said.
Michael Saunders, who sits on the central bank’s rate-setting panel, said the silver lining coming from the pandemic may be in prodding Britain to adopt technologies that will help boost growth. That suggests more room for the economy to expand before inflation becomes a threat.
U.K. has been blighted for years by weakest productivity since the Industrial Revolution, trailing most of the world’s advanced economies and contributing to depressed wages. That held back the economy long before coronavirus struck and left policy makers searching for solutions.
“While this shift to persistently higher remote working may create challenges in how firms enable collaborative working, in my view it also may have positive effects on the future path of potential output in terms of labor supply, labor productivity and a more efficient use of the capital stock compared to the old pre-pandemic model,” Saunders said in a speech webcast on Friday.
Saunders said the recession that came with lockdowns to control the virus slashed output per worker by a fifth and threaten to subdue it even further as restrictions persist. However, the switch to online shopping boosted productivity by 20% in the retail sector in the first three quarters of last year — eclipsing the gains made over the whole of the previous decade.
Initially, shifting much of the workforce to home contributed to the slump. Saunders said greater flexibility may help the U.K. in the future, allowing people that wouldn’t otherwise be able to go to jobs to earn a living and reducing absence due to sickness.
Productivity in office and administrative services jumped by more than 20% in the third quarter from a year earlier, he said, noting that wider use of video calls and reduced business travel are likely to generate substantial time savings. The ability to hire people living in other locations, better match jobs to skills and save on office space could also be benefits.
The comments were part of a broader speech assessing slack in the U.K. economy that built up during the recession and how policy makers might react. Saunders said the central bank is currently understating the economy’s spare capacity and is overly pessimistic about the path of potential output.
He played down the usefulness of inflation as a gage and indicated that unemployment would give a clearer picture, suggesting that further healing will be needed so long as joblessness is above 5%.
Asked about the recent increase in the value of the pound and in bond yields, he said that they have had little impact on financial conditions and would only concern him if they did.
— With assistance by Camomile Shumba