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What’s driving the UK’s hidden ‘productivity boom’?
While GDP growth remains slow, stubbornly low productivity has been ‘improving’ since 2024
The UK’s productivity, which measures the economic output of each worker per hour, has been dismal since the financial crisis of 2008. But new research suggests Britain’s economy has enjoyed a hidden productivity boom over the past two years.
Productivity has been growing by 1.1% per year since late 2024 – far above the official 0.2% estimate by the Office for National Statistics – according to the Resolution Foundation. The think tank analysed payroll data from HMRC and tax returns from the self-employed, arguing that this gives a more accurate representation of the workforce than the much-criticised Labour Force Survey the ONS uses.
The proportion of people responding to the ONS survey has collapsed since the pandemic, so experts say it has overestimated the increase in worker numbers. So productivity growth has been “respectable” and not as “dismal” as the ONS’ “flawed” measurements suggest, said the Resolution Foundation.
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“Britain’s dismal productivity record since the global financial crisis explains a lot of its economic stagnation and weak living standards growth,” said Simon Pittaway, the think tank’s principal economist. But contrary to official figures, our “more accurate productivity measure” suggests the output of workers has been “improving” since 2024.
Explanations include the introduction of AI into sectors like IT and financial services is “boosting output per hour”, said Mehreen Khan, economics editor at The Times. Increases in employment taxes might also have “forced firms to rein back on hiring”, leading to job cuts in low-pay sectors such as hospitality and retail, meaning the average worker appears more productive.
“But neither explanation is borne out by the data,” said Pittaway. The share of the workforce employed in hospitality is not lower than it was in the late 2010s, and AI is more widespread across different sectors of the economy. “Instead, the UK’s productivity recovery has been achieved by the same workers, doing the same jobs, and working in the same sectors.”
In May, economists at the London School of Economics also combined HMRC’s payroll and self-employment information with the ONS’ annual figures for an even brighter estimate. Since Labour was elected in 2024, annual productivity growth has run at about 1.6% – a “remarkable turnaround to our key barometer of material wellbeing”, said LSE professor John Van Reenen, who was chief economic adviser to former chancellor Rachel Reeves.
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Despite the “toxic economic and fiscal legacy” the government inherited, and “the headwinds” caused by Donald Trump’s trade wars, Reeves’ strategy of fiscal stability and investment has “started to deliver results”. We might also be witnessing “the first macro-economic flowers of the AI boom”.
However, said Sam Fleming and Amy Borrett in the Financial Times, economists “differ sharply over the relevance of the AI narrative at this stage given the patchy nature of the evidence”. The sectors that registered the biggest uptick in productivity included accommodation, wholesale and retail, which aren’t “leading adopters of AI”.
Still, recent reports are painting a “relatively optimistic picture”, said The Guardian’s economics editor, Heather Stewart. The UK was the joint fastest-growing economy in the G7 in the first half of this year, while consumer confidence rose to a two-year high this month. The economy may finally be emerging from “the long shadow” of the financial crisis.
The UK is now in “an OK place”, said Morgan Stanley’s chief UK economist, Bruna Skarica. That’s true of “the top end” of Britain’s economy, said Mihir Sharma on Bloomberg, but “the bottom is struggling”.
Slowing wage growth, fewer job vacancies than since the pandemic and rising unemployment all tell an “uncomfortable” story. Since Labour took office, Britain has had a “K-shaped recovery”. Its “nascent top-end revival is worth protecting”, but policymakers must think harder about “how to get young people and those in AI-exposed professions in on those productivity gains”.
What next?
In the US, productivity growth “picked up after the pandemic” and has been strong for three years, said Reuters; Skarica at Morgan Stanley expects a similar pattern in Britain.
But this productivity recovery “needs to be sustained and built upon if it’s to lead to big improvements in living standards”, said Pittaway at the Resolution Foundation. If people are still “priced out of jobs without being able to find alternative opportunities”, higher productivity growth offers “a less benign picture of the economy’s performance”, said the FT.
The ONS’ Labour Force Survey is being “revamped to encourage wider participation”, said Khan in The Times. It expects to launch the Transformed Labour Force Survey next year.
Harriet Marsden is a senior staff writer and podcast panellist for The Week, covering world news and writing the weekly Global Digest newsletter. Before joining the site in 2023, she was a freelance journalist for seven years, working for The Guardian, The Times and The Independent among others, and regularly appearing on radio shows. In 2021, she was awarded the “journalist-at-large” fellowship by the Local Trust charity, and spent a year travelling independently to some of England’s most deprived areas to write about community activism. She has a master’s in international journalism from City University, and has also worked in Bolivia, Colombia and Spain.
