While net lending to companies remains subdued, that partly reflects lenders running down their commercial property loans; new lending to businesses has picked up significantly over the past year. In sum, there are reasonable grounds to expect that the handover from households to businesses will be realised. As far as the prospects for productivity go, the picture is murkier. A feature of this downturn has been the unusual weakness of productivity growth. To give you an idea of the scale of the puzzle, output per person-hour worked is just over 15% below where it would have been if it had simply continued growing at its pre-crisis average rate (Chart 4). Part, but only a small part, of this shortfall can be traced to the low rate of business investment and special factors such as the decline in North Sea oil production. A possible explanation is the presence of overhead labour and the desire to hang on to skilled labour that might be difficult to replace when demand picked up; the low rate of pay growth will certainly have encouraged this. Some businesses also tell us that they have had to devote more effort to winning business while demand is depressed. Finally, the need to repair balance sheets may have led banks both to forbear on delinquent loans to some weaker businesses while simultaneously inhibiting the extension of new credit to riskier, but potentially more productive, enterprises. Now several of these explanations imply that a recovery in demand could be met largely with the existing workforce.
Compared with the 1990s recession, and despite a far greater collapse in demand, fewer businesses have failed and fewer people have lost their jobs and their homes. Now, at last, there are clear signs that the economy is on the mend. It is still early days and the MPC will be doing its utmost to ensure that recovery is not nipped in the bud. But when the time does come for us to start raising Bank Rate, we should celebrate that as a welcome sign that the economy is finally well on the road back to normality. Thank you! 4  BIS central bankers’ speeches  UK Economic Prospects North East Chamber of Commerce Presidents Club Talk Rockcliffe Hall Hotel Charlie Bean, Deputy Governor Monetary Policy 10 March 2014  Chart 1: Household saving ratio  (a) Recessions are defined as at least two consecutive quarters of falling output (at constant market prices) estimated using the latest data. The recessions are assumed to have ended once output began to rise. (b) Percentage of household post-tax income.