ONS, KLEMS and authors' calculations, see Appendix A.1 to Bailey et al. (2022) for more details. Unfortunately, there does not seem to be a consensus yet on what exactly lies behind this observed relationship. A growing literature shows that there are barriers to intangible investment, for example because intangible assets cannot be easily used as collateral. [24] Thus, the tightening of financial conditions following the global financial crisis could have disproportionally hindered the development of intangible-intensive industries, with potentially long-term consequences for productivity growth. [25] However, intangible investment has recovered in recent years, while productivity growth has remained weak. Could it be, perhaps, that the barriers to intangible investment benefit investment by low-productivity firms? Or are other factors at play? Other recent studies have highlighted the impact of the intangible economy on competition. Intangible technologies tend to require large upfront investments, what economists call fixed costs. This may give firms with high-intangible adoption a competitive advantage and make it difficult for new innovative firms to enter the market. In that case, entrenched incumbent firms may have fewer  Page 15  incentives to innovate, potentially slowing innovation adoption in the long run. [26] However, the UK data do not seem to provide strong evidence in favour of this second mechanism, compared with research studying the United States. While the US literature reports a decline in business dynamism and an increase in market power alongside the rise of intangibles, business dynamism seems to have been less affected in the United Kingdom.

For example, firms’ entry and exit rates have been stable in the United Kingdom since the early 2000s, in contrast to the declining rates observed in the United States. [27]  Taking stock and looking ahead My remarks today have purposefully abstracted from short-run influences on the macroeconomy in order to focus on the longer-term structural trends that have driven the secular decline in Global R* and the puzzling weakness of investment in the United Kingdom and other advanced economies. Why do these secular developments matter for central banks? The level of the trend real rate has important implications for the conduct of both monetary and financial policies. In a low interest rate environment, other things equal, monetary policy may find itself more often constrained by the effective lower bound on nominal interest rates (Bernanke et al., 2019). But prolonged periods of low interest rates may also pose financial stability risks via greater risk taking (Cunliffe, 2019). Understanding the trends in investment is also key given the importance of investment in driving long-run growth and productivity. In turn, productivity growth is an important determinant of potential output. Estimates of potential output are used to assess the size of the output gap, or level of spare capacity, which influences the degree of inflationary pressure in the economy. Such estimates can therefore have an important influence on the judgements that inform monetary policy decisions. The analysis I have discussed so far has looked at a number of secular trends over the past few decades.