Britain’s economic productivity is showing signs of sustained improvement, according to economists. The change could mark the end of a long period of weak productivity that began around the 2008 financial crisis and appeared to worsen after the COVID-19 pandemic.
Productivity measures the amount of economic output generated for each hour worked. Stronger productivity is important for raising living standards and helping the UK manage fiscal pressures from an ageing population and higher defence spending.
Research from the Resolution Foundation showed that annual growth in output per hour averaged 1.1% over the two years to the end of June 2026.
That compares with an annual decline of 0.7% during the previous two years and average growth of 0.7% in the late 2010s.
“While official figures suggest that the output of workers has worsened further in the mid-2020s, our more accurate productivity measure suggests that it has been improving in recent years,” said Simon Pittaway, an economist at the Resolution Foundation.
Survey problems make UK productivity hard to measure
The UK’s productivity figures have been difficult to assess because the main Office for National Statistics measure relied on a workers’ survey. Response rates fell sharply after the pandemic, reducing the reliability of the data.
In June, the ONS recommended moving towards tax data, which provides more reliable information on employee numbers but does not contain the same level of detail on hours worked and self-employment.
Economists have therefore developed their own estimates of productivity growth.
Bruna Skarica, chief UK economist at Morgan Stanley, estimates that private-sector productivity growth has increased to around 1.8% a year. That is close to the rate recorded before the global financial crisis.
“We are seeing similar trends as we saw in the U.S.,” she said, although the US improvement began around a year earlier than Britain’s.
US productivity growth strengthened after the pandemic and has remained strong for around three years.
The UK and US economies share several characteristics, including a strong reliance on services that could benefit from artificial intelligence. Skarica therefore expects the improvement to continue in Britain, similar to the productivity gains seen when computers became widely used in offices during the 1990s.
However, the role of AI in the latest improvement remains debated.
Robert Wood, chief UK economist at Pantheon Macroeconomics, said few British businesses have so far reported that AI has reduced staffing requirements. The impact has mainly been seen in some roles, such as junior software development.
The Resolution Foundation said the productivity improvement appeared to be broad-based. It also said some possible explanations could be ruled out, including reduced employment in lower-productivity sectors such as hospitality and retail following increases in the minimum wage.
“The UK’s productivity recovery has been achieved by the same workers, doing the same jobs, and working in the same sectors,” Pittaway said.
