Understanding and measuring finance for productive investment

Bank of Engand

A statutory objective of the Bank of England is to protect and enhance the stability of the financial system of the United Kingdom. One purpose of protecting and enhancing the stability of the UK financial system is to safeguard the stable provision of financial services to the real economy, including financing for productive investment.

Productivity growth is desirable because it enhances economic growth and raises living standards of the people of the United Kingdom by enabling higher levels of consumption. While investment is undertaken at the cost of current consumption, investing in productive assets and processes plays a major role in delivering economic growth and hence higher levels of consumption in the future.

In support of the Government’s priority to improve the United Kingdom’s productivity performance, HM Treasury and the Department for Business, Innovation and Skills (BIS) have published a ‘productivity plan’. This analysed the role of the financial sector in supporting productivity growth, both directly through the sector’s own productivity performance, and though its role in allocating resources to support long-term investment. The productivity plan noted that:2 ’To promote the provision of finance to support productive investment, it is important that it can be measured accurately. The Chancellor has therefore asked the Governor of the Bank of England, working with HM Treasury, to initiate research to create better measurement of ‘finance for productive investment’ covering all asset classes and all stages of finance, with a view to publishing the data on a regular basis.’

This Discussion Paper represents the first step in initiating research that seeks to understand and better measure finance for productive investment.