UK Productivity Rebounds After Years of Weak Growth as Economists See Signs of Recovery
After years of disappointing results, Britain’s economy is showing a shift that could reshape expectations for wages, growth, and public finances.
Labour productivity in the United Kingdom has begun to show signs of sustained growth. Economists believe this may indicate the end of a prolonged period of weak performance that began after the 2008 financial crisis and was likely exacerbated by the COVID-19 pandemic.
Higher productivity – the amount of goods and services produced by the economy per hour worked – is crucial to improving living standards. It could also partly offset the fiscal pressures associated with the UK’s ageing population and increased defence spending.
Estimates from the Resolution Foundation think tank, published on 24 August, indicate that average annual growth in output per hour over the two years to the end of June 2026 was 1.1%. By comparison, the measure had fallen by an average of 0.7% per year over the preceding two years, while in the late 2010s it grew by around 0.7% annually.
While official data suggest that worker productivity deteriorated further in the mid-2020s, our more accurate productivity measure indicates that it has been improving in recent years.
Statistical issues complicate productivity assessment in the United Kingdom
Until recently, the Office for National Statistics’ main productivity measure relied on a survey of workers. After the pandemic, response rates to the survey fell sharply, casting doubt on the accuracy of its results.
In June, the Office for National Statistics proposed using tax data, which provide more reliable information on the number of workers. At the same time, these data contain less information about hours worked and self-employed people.
Because of shortcomings in official statistics, economists have developed their own estimates of productivity growth. Bruna Skarica believes that the rate in the UK private sector has risen to 1.8% a year, close to the level seen before the global financial crisis.
We are seeing trends similar to those observed in the United States.
At the same time, Bruna Skarica noted that productivity improvements in the United States began around a year earlier than in the United Kingdom. After the pandemic, productivity growth in the US economy accelerated and remained strong for around three years.
Artificial intelligence could support growth
According to Bruna Skarica, the similarities between the UK and US economies may help drive further improvement. Both countries depend heavily on the services sector, where widespread use of artificial intelligence could improve efficiency.
She expects the positive trend in the United Kingdom to continue, comparing it to the spread of computers in offices in the 1990s. However, the role of artificial intelligence in the current acceleration in productivity remains a matter of debate.
Robert Wood noted that few British companies have so far said they need fewer staff because of artificial intelligence. Exceptions include certain professions, particularly junior software developers. This leaves open the question of how long the current growth will last.
The Resolution Foundation stressed that productivity gains have extended across different sectors of the economy. Analysts consider it unlikely that the improvement can be explained by falling employment in less productive sectors, including hospitality and retail, following an increase in the minimum wage.
The recovery in UK productivity has been driven by the same workers doing the same jobs in the same sectors.
Overall, the new estimates point to a broader improvement in the efficiency of the British economy, although the underlying causes of this growth and its long-term sustainability still require further analysis.
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