Speaker 1: Bloomberg Audio Studios, podcasts, radio news want to bring us
Speaker 1: back to the UK now, of course, the trade news
Speaker 1: on Friday adding a new layer of complications to the
Speaker 1: challenges facing the UK economy, but one that's been much
Speaker 1: more long running has been a lack of productivity growth.
Speaker 1: Catherine Mann recently pointing it as to again one of
Speaker 1: the key challenges facing the UK economy, and new report
Speaker 1: by Boston Consulting Group is looking at this issue at
Speaker 1: a sector by sector level, showing Britain's biggest industries have
Speaker 1: been responsible for the decades long decline in productivity that's
Speaker 1: roughly half the GDP growth rate since the end of
Speaker 1: the nineteen nineties. Joining us now to discuss at role Ruperrell,
Speaker 1: who was director of BCG's Center for Growth or All
Speaker 1: good morning. I will get to your report in just
Speaker 1: a moment, but as someone who's also a former advisor
Speaker 1: to the Prime Minister Teresa Aow when she was in
Speaker 1: that office, I'm just wondering what your perspective is on
Speaker 1: the trade situation. This morning, Donald Trump talking about a
Speaker 1: fifteen percent global TARFF. Now, of course it'd be an
Speaker 1: increase for the UK as well. I mean, is this
Speaker 1: particularly bad news for the government.
Speaker 2: Yeah, well, good morning. It's obviously uncertain and adds another
Speaker 2: layer of difficulty for something the government to navigate. But
Speaker 2: I think it's still early days in terms of seeing
Speaker 2: where this lands and whether it will be an increase
Speaker 2: for the UK. It's not entirely clear what it means
Speaker 2: for countries that have struck a deal with the US,
Speaker 2: whether this would supersede that, whether there would be another
Speaker 2: negotiation to try to bring down from it, and also
Speaker 2: then where this lands in the medium and long term
Speaker 2: when they revert beyond this short term measure. So I think, look,
Speaker 2: it is another source of uncertainty, but the government and
Speaker 2: most countries have had to navigate this for the past year,
Speaker 2: and I think they will be taking it in their
Speaker 2: stride and trying to work behind the scenes and again
Speaker 2: re establish the deal that has been struck previously.
Speaker 3: Okay, so that's interesting on trade, but as you say,
Speaker 3: I mean the uncertainty is perhaps a concern for the
Speaker 3: UK economy. And look, your research on productivity is very interesting.
Speaker 3: We know that the UK's had a productivity issue for
Speaker 3: for many years actually if you look at the data.
Speaker 3: But do you think in the work that you've done
Speaker 3: that the UK has a particular problem with productivity that
Speaker 3: is worse than other countries or than peers globally.
Speaker 2: Yes, well, I think one of the issues we tried
Speaker 2: to unpack is doing a cross country comparison at the
Speaker 2: sector level to see whether the UK is falling behind piers,
Speaker 2: and I think what we see is that the UK
Speaker 2: is doing worse see in some big sectors than a
Speaker 2: number of peer countries and certainly then the global productivity frontiers.
Speaker 2: So for example, in financial services we have fallen back
Speaker 2: despite being quite close to the world leading into the
Speaker 2: frontier in the nineties ninety two thousands. In manufacturing we've
Speaker 2: stagnated for a long period and the front has pulled
Speaker 2: away from US a bit, but that's true of most
Speaker 2: of the G seven in other developed countries. And then
Speaker 2: in information it comms the frontier is in the last
Speaker 2: few years at least accelerating away from the UK, driven
Speaker 2: particularly by the US. But the flip side of that
Speaker 2: is that the UK is actually still growing faster than
Speaker 2: the G seven in this sector. So there are different
Speaker 2: things going on in different reasons. I would say info
Speaker 2: and coms the UK is doing quite well, but not
Speaker 2: quite as well as the best like the US, but
Speaker 2: in financial services and manufacturing we are falling back, although
Speaker 2: we are still better than peers in financial services in
Speaker 2: many cases.
Speaker 1: Yeah, the financial services figures I find of particular interest.
Speaker 1: It seemed somewhat surprising that the UK would be, as
Speaker 1: you say, falling behind on this despite the strength of
Speaker 1: the sector overall. What's driving that, what's weighing on the sector?
Speaker 2: Well, I think it's been a long term challenge post
Speaker 2: of financial crisis which the UK and other countries have faced.
Speaker 2: But I think there's probably a combination of obviously regulatory
Speaker 2: choices that the UK has made and maybe not quite
Speaker 2: getting the right balance in the medium and long term
Speaker 2: between risk and regulation. In terms of the financial services,
Speaker 2: we've also seen a shift in the nature of our
Speaker 2: financial services sector in the UK. You know, we are
Speaker 2: less banking and investment banking dominated than we were back
Speaker 2: then before the financial crisis, and we've moved more to
Speaker 2: sort of xiliary services asset management, payments, etc. And these
Speaker 2: services are at least in the stats, inherently a bit
Speaker 2: less productive, but obviously they may present growth opportunities going
Speaker 2: forward in the future as other countries develop and maybe
Speaker 2: demand more of these services. So it's a nuanced picture,
Speaker 2: but it does say that other countries have done a
Speaker 2: slightly better job in the post crisis period, even those
Speaker 2: that were hit quite hard by the crisis, such as
Speaker 2: the US, to diversify and continue to grow their financial
Speaker 2: services productivity, whereas the UK has been stagnating in this
Speaker 2: sector for essentially fifteen years.
Speaker 3: Yeah, I mean the findings of the report are really
Speaker 3: pretty stark. You talk about the few sectors which were
Speaker 3: able to prop up the rest of the economy are
Speaker 3: no longer doing so. I suppose the big question from
Speaker 3: all of this research is what is the government doing
Speaker 3: about it? Now? What can it do to try to
Speaker 3: re energize an economy that on so many fronts is
Speaker 3: not performing as well as it should be well.
Speaker 2: I think the point of our report was hopefully to
Speaker 2: highlight that, you know, you can take a nuanced and
Speaker 2: approach to this, and that there are certain sexual strength
Speaker 2: I mentioned info and comms where we are doing well
Speaker 2: and we are performing better than our G seven peers,
Speaker 2: for example. But I think it speaks to needing different
Speaker 2: interventions for different problems rather than just doing a one
Speaker 2: size fits all approach, and I think there are sectors
Speaker 2: like manufacturing where the government is pushing on some of
Speaker 2: the structural problems we see that have held the sector
Speaker 2: back as a whole. We know they're working on planning,
Speaker 2: we know they're working on looking at energy prices to
Speaker 2: an extent, but more needs to be done there. And
Speaker 2: then I think we also know there are some things
Speaker 2: going on in the financial services sector on the regulatory
Speaker 2: approach to try and find a better balance here. But yeah,
Speaker 2: it speaks to the need to continue to push and
Speaker 2: really focus in on these sectors that can drive growth.
Speaker 2: And I think when it comes to the industrial strategy
Speaker 2: that seems to have fallen by the wayside a little bit,
Speaker 2: so making sure that as a focus in getting back
Speaker 2: to that core mission of driving growth will be really important.
Speaker 1: What about the question of artificial intelligence In this we're
Speaker 1: constantly tell that there are huge productivity gains to be
Speaker 1: had from it. Does the UK look set up to
Speaker 1: be able to take advantage of those gains?
Speaker 3: Well?
Speaker 2: I think one thing that comes through from this report
Speaker 2: is that we do have a very long tail of
Speaker 2: low productivity firms. The number of low productivity firms has
Speaker 2: increased in real terms since nineteen ninety seven, for example,
Speaker 2: and so and the lowest five percent are actually less
Speaker 2: productive in real terms than they were in ninety seven.
Speaker 2: And I think what that tells us when it comes
Speaker 2: to AI is that if you believe the productivity benefits
Speaker 2: from ar AI partly come through adoption, so this being
Speaker 2: spread across the economy and adopted by as many businesses
Speaker 2: as possible, that is something that the UK has traditionally
Speaker 2: not been great at. You know, that's why we have
Speaker 2: this long tail of low productivity firms despite the fact
Speaker 2: that some firms at the top of the productivity spectrum
Speaker 2: are growing quite strongly. You know, we're not spreading that innovation,
Speaker 2: spreading new technology, spreading best practice. And so I think
Speaker 2: from an AI perspective, what the UK has to avoid
Speaker 2: is getting back into the same problem where we see
Speaker 2: a few firms at the top adopting it and getting
Speaker 2: productivity gains, and then a big gap between those in
Speaker 2: the middle and the bottom of the spectrum where it
Speaker 2: takes a lot longer for that to pass through. And
Speaker 2: if that happens again, I think we will miss out
Speaker 2: on some of the potential productivity gains from AI. So
Speaker 2: there are definitely some learnings for how we should approach
Speaker 2: rolling out AI and maybe how the government can support
Speaker 2: the spread of best practiced the spread of innovation and
Speaker 2: helping businesses understand use cases and how they can start
Speaker 2: practically using AI and allowing the lowest productivity firms to
Speaker 2: catch up rather than just letting the most productive pull ahead.