The Uk Productivity Puzzle: Role of Economic Policy Uncertainty

This paper investigates the impact of economic policy uncertainty (EPU) on the productivity of privately held small and medium-sized enterprises in the UK. Using proprietary data published by the UK’s Office of National Statistics, the analysis shows that in times of high economic policy uncertainty, productivity declines and inefficiency increases. Economic policy uncertainty affects multiple productivity channels, leading to reduced investment, lower employment, and increased R&D expenditures. At the regional level, the study explores whether London holds a productivity advantage. Finally, there is significant heterogeneity in how EPU affects different regions across the UK.