That would only be a problem if the world recovery faltered seriously. While Asia and emerging markets continue to power ahead, and the US and the European Union are also recovering steadily, we should not expect to see a significant interruption to growth across the world economy. 3  See Sentance, A., “Sustaining the Recovery” Speech hosted by British American Business Council and RSM Tenon in London, 13 October 2010. Available on the Bank of England website. BIS Review 158/2010  3  Business resilience through the recession The turnaround that we have seen in the UK economy over the last year mainly reflects a change in demand conditions. But economic growth cannot be generated simply by stimulating demand if the supply side of the economy is not in good shape and able to respond. In the UK, we saw this most clearly in the 1970s and early 1980s, when British business was encumbered by problems of poor industrial relations, low productivity and inflexible labour markets – the symptoms of what became known as “The British Disease”. Since that time, we have seen quite a bit of evidence that the supply side of the UK economy has indeed become more flexible and supportive of growth. Surveys of the business climate in the UK, which aim to take into account the impact of regulation and other factors as barriers to doing business, show that we are well placed internationally, as the latest “Doing Business” survey from the World Bank shows (see Chart 2).
This points to a high degree of flexibility about pay and conditions of employment in the short-term. But the likely “quid pro quo” of this approach is that, when company fortunes improve, employees will expect to share in the benefits of the upswing to compensate for sacrifices made in the downturn. For this reason, I would expect private sector wage growth to pick up now that the economy is recovering, returning quite quickly to the rates we saw before the recession. Employment has also been sustained by the long-term confidence of management in the viability and future success of their businesses. In past recessions, when this longer-term confidence was much weaker, employment has fallen more sharply. For example, in the early 1980s, UK manufacturing companies entered the recession facing many problems of low productivity, poor industrial relations and an unstable macroeconomic environment, with high cost and price inflation. It was therefore not surprising that the early-80s recession was the last straw which saw many UK manufacturers closing down operations and international businesses shifting their production bases elsewhere. In the recent downturn, the bulk of UK businesses have felt more confident about their longer term prospects and have sought to retain their resources of skilled labour and experienced workers so they would be well placed to benefit from the upswing when it came. That attitude and approach is in my view a positive signal for our future prosperity and business success.