Bridging the Gap: Understanding the UK-US Productivity Decoupling
Selected Issues Papers, August 12, 2025
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Bibliographic details
- Authors: Leonardo Indraccolo
- Published: August 12, 2025
- Series: Selected Issues Papers
- DOI: https://doi.org/10.5089/9798229020985.018
Summary and central finding
- The UK’s productivity gap with the US has widened over the past two decades, with productivity growth rates decoupling after the Global Financial Crisis (GFC).
- The paper uses sectoral and firm-level data to discuss different microeconomic drivers of the diverging trends.
- While the loss of pre-GFC growth engines, in particular the leverage-driven boom in the financial sector, accounts for a large part of the productivity slowdown relative to the US, it is only part of the explanation.
Microeconomic drivers and firm-level results
- Outside the financial sector, the UK’s publicly listed companies, especially frontier firms, have lagged behind the US due to a significant decline in post-GFC total factor productivity (TFP) growth.
- This decline in TFP growth has resulted in widening efficiency gaps within firms.
- The analysis discusses reduced investment in intangible capital following the GFC, along with lower R&D spending compared to the US, as possible contributors to subdued TFP growth among UK firms.
Sectoral patterns and growth engines
- Key sectors identified for revitalization include the financial sector and the ICT sector.
- The loss of the pre-GFC leverage-driven boom in finance is highlighted as a major contributor to the UK’s relative slowdown.
Policy recommendations and strategy
- The paper suggests a two-pronged approach to revive productivity:
1) Building on the UK’s strengths and revitalizing traditional growth engines, especially the financial and ICT sectors; and 2) Fostering a more conducive environment to business innovation through greater access to scale-up finance and continued efforts to retain high skilled individuals.
- Emphasis is placed on encouraging investment in intangible capital and raising R&D spending relative to the US to support TFP recovery.
Subject classifications and keywords
- Subject: Capital productivity, Labor productivity, Production, Productivity, Total factor productivity
- Keywords: Capital productivity, Europe, frontier firm, Global, Growth, I. productivity trend, Labor productivity, net Equity issuance, Productivity, productivity decile, sectoral productivity pattern, TFP growth Uk-US, Total factor productivity, UK's productivity gap, United Kingdom
Publication metadata and key numbers
- Pages: 28
- Volume: 2025
- DOI: https://doi.org/10.5089/9798229020985.018
- Issue: 112
- Series: Selected Issues Paper No. 2025/112
- Stock No: SIPEA2025112
- ISBN: 9798229020985
- ISSN: 2958-7875
- Author and date: Leonardo Indraccolo, August 12, 2025
Source: Bridging the Gap: Understanding the UK-US Productivity Decoupling (Selected Issues Papers, 2025).
Content in this bundle
- Sipea2025112