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While most mainstream economic studies accept that the reason for the UK’s poor productivity record, particularly since the end of the Great Recession, is due to low investment in key productive sectors by key large companies, nobody has an explanation for this.
In my view, it is also clear why. The profitability in the productive sectors of the British economy remains low relative to before the Great Recession and even back to the 1990s. Profitability reached a peak in 1997. Since then, overall profits have risen in nominal terms by about 60%. But despite the credit boom of the early 2000s and the recovery since the Great Recession, profitability (ie profits per the stock of capital invested) remains below that peak. As a result, British capital has invested in financial assets or hoarded cash in tax havens or invested abroad rather than in the UK.
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