1 00:00:02,520 --> 00:00:08,319 Speaker 1: Bloomberg Audio Studios, podcasts, radio news want to bring us 2 00:00:08,320 --> 00:00:11,040 Speaker 1: back to the UK now, of course, the trade news 3 00:00:11,080 --> 00:00:14,280 Speaker 1: on Friday adding a new layer of complications to the 4 00:00:14,360 --> 00:00:17,239 Speaker 1: challenges facing the UK economy, but one that's been much 5 00:00:17,239 --> 00:00:20,600 Speaker 1: more long running has been a lack of productivity growth. 6 00:00:20,680 --> 00:00:23,480 Speaker 1: Catherine Mann recently pointing it as to again one of 7 00:00:23,520 --> 00:00:26,000 Speaker 1: the key challenges facing the UK economy, and new report 8 00:00:26,040 --> 00:00:28,240 Speaker 1: by Boston Consulting Group is looking at this issue at 9 00:00:28,280 --> 00:00:31,360 Speaker 1: a sector by sector level, showing Britain's biggest industries have 10 00:00:31,440 --> 00:00:35,040 Speaker 1: been responsible for the decades long decline in productivity that's 11 00:00:35,200 --> 00:00:37,440 Speaker 1: roughly half the GDP growth rate since the end of 12 00:00:37,479 --> 00:00:40,240 Speaker 1: the nineteen nineties. Joining us now to discuss at role Ruperrell, 13 00:00:40,280 --> 00:00:43,400 Speaker 1: who was director of BCG's Center for Growth or All 14 00:00:43,479 --> 00:00:46,760 Speaker 1: good morning. I will get to your report in just 15 00:00:46,800 --> 00:00:49,760 Speaker 1: a moment, but as someone who's also a former advisor 16 00:00:49,760 --> 00:00:52,040 Speaker 1: to the Prime Minister Teresa Aow when she was in 17 00:00:52,080 --> 00:00:54,959 Speaker 1: that office, I'm just wondering what your perspective is on 18 00:00:55,200 --> 00:00:58,200 Speaker 1: the trade situation. This morning, Donald Trump talking about a 19 00:00:58,240 --> 00:01:00,680 Speaker 1: fifteen percent global TARFF. Now, of course it'd be an 20 00:01:00,680 --> 00:01:03,240 Speaker 1: increase for the UK as well. I mean, is this 21 00:01:03,320 --> 00:01:05,120 Speaker 1: particularly bad news for the government. 22 00:01:05,440 --> 00:01:09,200 Speaker 2: Yeah, well, good morning. It's obviously uncertain and adds another 23 00:01:09,280 --> 00:01:12,520 Speaker 2: layer of difficulty for something the government to navigate. But 24 00:01:12,560 --> 00:01:14,479 Speaker 2: I think it's still early days in terms of seeing 25 00:01:14,480 --> 00:01:16,480 Speaker 2: where this lands and whether it will be an increase 26 00:01:16,520 --> 00:01:19,040 Speaker 2: for the UK. It's not entirely clear what it means 27 00:01:19,080 --> 00:01:21,120 Speaker 2: for countries that have struck a deal with the US, 28 00:01:21,160 --> 00:01:23,520 Speaker 2: whether this would supersede that, whether there would be another 29 00:01:23,600 --> 00:01:26,680 Speaker 2: negotiation to try to bring down from it, and also 30 00:01:26,760 --> 00:01:28,720 Speaker 2: then where this lands in the medium and long term 31 00:01:29,160 --> 00:01:32,720 Speaker 2: when they revert beyond this short term measure. So I think, look, 32 00:01:32,760 --> 00:01:35,440 Speaker 2: it is another source of uncertainty, but the government and 33 00:01:35,480 --> 00:01:37,679 Speaker 2: most countries have had to navigate this for the past year, 34 00:01:37,680 --> 00:01:39,240 Speaker 2: and I think they will be taking it in their 35 00:01:39,280 --> 00:01:42,880 Speaker 2: stride and trying to work behind the scenes and again 36 00:01:43,000 --> 00:01:45,560 Speaker 2: re establish the deal that has been struck previously. 37 00:01:46,360 --> 00:01:49,160 Speaker 3: Okay, so that's interesting on trade, but as you say, 38 00:01:49,160 --> 00:01:53,080 Speaker 3: I mean the uncertainty is perhaps a concern for the 39 00:01:53,160 --> 00:01:58,880 Speaker 3: UK economy. And look, your research on productivity is very interesting. 40 00:01:59,040 --> 00:02:01,760 Speaker 3: We know that the UK's had a productivity issue for 41 00:02:01,760 --> 00:02:04,080 Speaker 3: for many years actually if you look at the data. 42 00:02:04,600 --> 00:02:07,000 Speaker 3: But do you think in the work that you've done 43 00:02:07,040 --> 00:02:09,920 Speaker 3: that the UK has a particular problem with productivity that 44 00:02:10,080 --> 00:02:13,520 Speaker 3: is worse than other countries or than peers globally. 45 00:02:15,400 --> 00:02:17,040 Speaker 2: Yes, well, I think one of the issues we tried 46 00:02:17,040 --> 00:02:19,400 Speaker 2: to unpack is doing a cross country comparison at the 47 00:02:19,440 --> 00:02:22,440 Speaker 2: sector level to see whether the UK is falling behind piers, 48 00:02:22,440 --> 00:02:24,239 Speaker 2: and I think what we see is that the UK 49 00:02:24,440 --> 00:02:27,120 Speaker 2: is doing worse see in some big sectors than a 50 00:02:27,200 --> 00:02:30,799 Speaker 2: number of peer countries and certainly then the global productivity frontiers. 51 00:02:30,800 --> 00:02:34,320 Speaker 2: So for example, in financial services we have fallen back 52 00:02:34,360 --> 00:02:37,400 Speaker 2: despite being quite close to the world leading into the 53 00:02:37,400 --> 00:02:41,120 Speaker 2: frontier in the nineties ninety two thousands. In manufacturing we've 54 00:02:41,160 --> 00:02:43,560 Speaker 2: stagnated for a long period and the front has pulled 55 00:02:43,560 --> 00:02:45,520 Speaker 2: away from US a bit, but that's true of most 56 00:02:45,520 --> 00:02:48,200 Speaker 2: of the G seven in other developed countries. And then 57 00:02:48,240 --> 00:02:51,080 Speaker 2: in information it comms the frontier is in the last 58 00:02:51,080 --> 00:02:53,760 Speaker 2: few years at least accelerating away from the UK, driven 59 00:02:53,800 --> 00:02:56,240 Speaker 2: particularly by the US. But the flip side of that 60 00:02:56,400 --> 00:02:58,480 Speaker 2: is that the UK is actually still growing faster than 61 00:02:58,480 --> 00:03:01,520 Speaker 2: the G seven in this sector. So there are different 62 00:03:01,560 --> 00:03:03,760 Speaker 2: things going on in different reasons. I would say info 63 00:03:03,760 --> 00:03:05,800 Speaker 2: and coms the UK is doing quite well, but not 64 00:03:05,880 --> 00:03:08,000 Speaker 2: quite as well as the best like the US, but 65 00:03:08,080 --> 00:03:11,079 Speaker 2: in financial services and manufacturing we are falling back, although 66 00:03:11,120 --> 00:03:13,680 Speaker 2: we are still better than peers in financial services in 67 00:03:13,720 --> 00:03:14,400 Speaker 2: many cases. 68 00:03:14,720 --> 00:03:17,639 Speaker 1: Yeah, the financial services figures I find of particular interest. 69 00:03:18,160 --> 00:03:22,400 Speaker 1: It seemed somewhat surprising that the UK would be, as 70 00:03:22,440 --> 00:03:25,320 Speaker 1: you say, falling behind on this despite the strength of 71 00:03:25,320 --> 00:03:29,440 Speaker 1: the sector overall. What's driving that, what's weighing on the sector? 72 00:03:30,800 --> 00:03:33,040 Speaker 2: Well, I think it's been a long term challenge post 73 00:03:33,080 --> 00:03:35,800 Speaker 2: of financial crisis which the UK and other countries have faced. 74 00:03:35,800 --> 00:03:39,320 Speaker 2: But I think there's probably a combination of obviously regulatory 75 00:03:39,400 --> 00:03:42,600 Speaker 2: choices that the UK has made and maybe not quite 76 00:03:42,680 --> 00:03:44,880 Speaker 2: getting the right balance in the medium and long term 77 00:03:44,880 --> 00:03:48,680 Speaker 2: between risk and regulation. In terms of the financial services, 78 00:03:48,920 --> 00:03:50,720 Speaker 2: we've also seen a shift in the nature of our 79 00:03:50,760 --> 00:03:53,440 Speaker 2: financial services sector in the UK. You know, we are 80 00:03:53,520 --> 00:03:56,480 Speaker 2: less banking and investment banking dominated than we were back 81 00:03:56,520 --> 00:03:59,560 Speaker 2: then before the financial crisis, and we've moved more to 82 00:03:59,600 --> 00:04:04,200 Speaker 2: sort of xiliary services asset management, payments, etc. And these 83 00:04:04,240 --> 00:04:06,880 Speaker 2: services are at least in the stats, inherently a bit 84 00:04:06,960 --> 00:04:11,120 Speaker 2: less productive, but obviously they may present growth opportunities going 85 00:04:11,160 --> 00:04:14,640 Speaker 2: forward in the future as other countries develop and maybe 86 00:04:14,640 --> 00:04:17,240 Speaker 2: demand more of these services. So it's a nuanced picture, 87 00:04:17,279 --> 00:04:19,600 Speaker 2: but it does say that other countries have done a 88 00:04:19,640 --> 00:04:22,480 Speaker 2: slightly better job in the post crisis period, even those 89 00:04:22,480 --> 00:04:25,200 Speaker 2: that were hit quite hard by the crisis, such as 90 00:04:25,279 --> 00:04:28,479 Speaker 2: the US, to diversify and continue to grow their financial 91 00:04:28,520 --> 00:04:31,839 Speaker 2: services productivity, whereas the UK has been stagnating in this 92 00:04:31,920 --> 00:04:34,280 Speaker 2: sector for essentially fifteen years. 93 00:04:34,800 --> 00:04:37,280 Speaker 3: Yeah, I mean the findings of the report are really 94 00:04:37,320 --> 00:04:40,920 Speaker 3: pretty stark. You talk about the few sectors which were 95 00:04:41,440 --> 00:04:44,400 Speaker 3: able to prop up the rest of the economy are 96 00:04:44,520 --> 00:04:48,680 Speaker 3: no longer doing so. I suppose the big question from 97 00:04:48,720 --> 00:04:51,560 Speaker 3: all of this research is what is the government doing 98 00:04:51,600 --> 00:04:54,840 Speaker 3: about it? Now? What can it do to try to 99 00:04:56,200 --> 00:04:59,760 Speaker 3: re energize an economy that on so many fronts is 100 00:05:00,400 --> 00:05:04,080 Speaker 3: not performing as well as it should be well. 101 00:05:04,120 --> 00:05:06,600 Speaker 2: I think the point of our report was hopefully to 102 00:05:06,680 --> 00:05:09,200 Speaker 2: highlight that, you know, you can take a nuanced and 103 00:05:09,640 --> 00:05:12,400 Speaker 2: approach to this, and that there are certain sexual strength 104 00:05:12,480 --> 00:05:14,880 Speaker 2: I mentioned info and comms where we are doing well 105 00:05:14,920 --> 00:05:17,159 Speaker 2: and we are performing better than our G seven peers, 106 00:05:17,200 --> 00:05:19,839 Speaker 2: for example. But I think it speaks to needing different 107 00:05:19,839 --> 00:05:22,640 Speaker 2: interventions for different problems rather than just doing a one 108 00:05:22,680 --> 00:05:25,560 Speaker 2: size fits all approach, and I think there are sectors 109 00:05:25,600 --> 00:05:28,600 Speaker 2: like manufacturing where the government is pushing on some of 110 00:05:28,640 --> 00:05:30,799 Speaker 2: the structural problems we see that have held the sector 111 00:05:30,839 --> 00:05:34,040 Speaker 2: back as a whole. We know they're working on planning, 112 00:05:34,080 --> 00:05:37,400 Speaker 2: we know they're working on looking at energy prices to 113 00:05:37,400 --> 00:05:40,240 Speaker 2: an extent, but more needs to be done there. And 114 00:05:40,279 --> 00:05:42,240 Speaker 2: then I think we also know there are some things 115 00:05:42,279 --> 00:05:44,640 Speaker 2: going on in the financial services sector on the regulatory 116 00:05:44,680 --> 00:05:48,960 Speaker 2: approach to try and find a better balance here. But yeah, 117 00:05:48,960 --> 00:05:50,840 Speaker 2: it speaks to the need to continue to push and 118 00:05:50,880 --> 00:05:54,240 Speaker 2: really focus in on these sectors that can drive growth. 119 00:05:54,240 --> 00:05:56,360 Speaker 2: And I think when it comes to the industrial strategy 120 00:05:56,440 --> 00:05:58,640 Speaker 2: that seems to have fallen by the wayside a little bit, 121 00:05:58,720 --> 00:06:01,360 Speaker 2: so making sure that as a focus in getting back 122 00:06:01,400 --> 00:06:03,960 Speaker 2: to that core mission of driving growth will be really important. 123 00:06:04,600 --> 00:06:07,080 Speaker 1: What about the question of artificial intelligence In this we're 124 00:06:07,240 --> 00:06:09,599 Speaker 1: constantly tell that there are huge productivity gains to be 125 00:06:09,640 --> 00:06:12,240 Speaker 1: had from it. Does the UK look set up to 126 00:06:12,279 --> 00:06:14,760 Speaker 1: be able to take advantage of those gains? 127 00:06:16,480 --> 00:06:16,600 Speaker 3: Well? 128 00:06:16,640 --> 00:06:18,480 Speaker 2: I think one thing that comes through from this report 129 00:06:18,520 --> 00:06:20,240 Speaker 2: is that we do have a very long tail of 130 00:06:20,279 --> 00:06:24,320 Speaker 2: low productivity firms. The number of low productivity firms has 131 00:06:24,400 --> 00:06:27,440 Speaker 2: increased in real terms since nineteen ninety seven, for example, 132 00:06:27,520 --> 00:06:30,080 Speaker 2: and so and the lowest five percent are actually less 133 00:06:30,080 --> 00:06:32,440 Speaker 2: productive in real terms than they were in ninety seven. 134 00:06:32,640 --> 00:06:34,320 Speaker 2: And I think what that tells us when it comes 135 00:06:34,360 --> 00:06:37,440 Speaker 2: to AI is that if you believe the productivity benefits 136 00:06:37,440 --> 00:06:40,360 Speaker 2: from ar AI partly come through adoption, so this being 137 00:06:40,400 --> 00:06:43,800 Speaker 2: spread across the economy and adopted by as many businesses 138 00:06:43,839 --> 00:06:47,000 Speaker 2: as possible, that is something that the UK has traditionally 139 00:06:47,040 --> 00:06:48,839 Speaker 2: not been great at. You know, that's why we have 140 00:06:48,960 --> 00:06:51,600 Speaker 2: this long tail of low productivity firms despite the fact 141 00:06:51,600 --> 00:06:53,880 Speaker 2: that some firms at the top of the productivity spectrum 142 00:06:53,920 --> 00:06:57,000 Speaker 2: are growing quite strongly. You know, we're not spreading that innovation, 143 00:06:57,120 --> 00:07:00,520 Speaker 2: spreading new technology, spreading best practice. And so I think 144 00:07:00,520 --> 00:07:03,680 Speaker 2: from an AI perspective, what the UK has to avoid 145 00:07:03,720 --> 00:07:05,880 Speaker 2: is getting back into the same problem where we see 146 00:07:05,960 --> 00:07:08,120 Speaker 2: a few firms at the top adopting it and getting 147 00:07:08,120 --> 00:07:11,040 Speaker 2: productivity gains, and then a big gap between those in 148 00:07:11,080 --> 00:07:13,200 Speaker 2: the middle and the bottom of the spectrum where it 149 00:07:13,200 --> 00:07:15,760 Speaker 2: takes a lot longer for that to pass through. And 150 00:07:15,840 --> 00:07:18,360 Speaker 2: if that happens again, I think we will miss out 151 00:07:18,360 --> 00:07:20,720 Speaker 2: on some of the potential productivity gains from AI. So 152 00:07:20,960 --> 00:07:23,239 Speaker 2: there are definitely some learnings for how we should approach 153 00:07:24,280 --> 00:07:27,240 Speaker 2: rolling out AI and maybe how the government can support 154 00:07:27,360 --> 00:07:30,160 Speaker 2: the spread of best practiced the spread of innovation and 155 00:07:30,240 --> 00:07:33,120 Speaker 2: helping businesses understand use cases and how they can start 156 00:07:33,280 --> 00:07:37,160 Speaker 2: practically using AI and allowing the lowest productivity firms to 157 00:07:37,200 --> 00:07:40,880 Speaker 2: catch up rather than just letting the most productive pull ahead.