UK productivity showing sustained improvement, economists say

By David Milliken

LONDON, Aug 24 (Reuters) - Britain's economic productivity is starting to show signs of sustained improvement, economists said on Monday, potentially marking the end of a prolonged slump that began around the 2008 financial crisis and appeared to worsen after the COVID-19 pandemic.

Rising productivity — or the amount of economic output generated per hour worked — is key to higher living standards and offsetting some of the fiscal headwinds from Britain's ageing population and growing defence spending.

Estimates from the Resolution Foundation think tank, published on Monday, showed that annual growth in output per hour had risen to an average of 1.1% over the two years to the end of June 2026, up from an annual decline of 0.7% in the two previous years and an average rise 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 with the Resolution Foundation.

SURVEY PROBLEMS MAKE UK PRODUCTIVITY HARD TO MEASURE

Until recently, the Office for National Statistics' main productivity measure was based on a workers' survey that suffered from a big fall in response rates after the pandemic. In June, it instead recommended using tax data, which gives more reliable employee numbers but lacks detail on hours worked and self-employment.

Economists, meanwhile, have come up with their own estimates of productivity growth. 

Bruna Skarica, chief UK economist at Morgan Stanley, believes private-sector productivity growth has risen to 1.8% a year — close to the pace seen before the global financial crisis.

"We are seeing similar trends as we saw in the U.S.," she said, but added that the U.S. improvement began roughly a year earlier than Britain's.

In the United States, productivity growth picked up after the pandemic and has been strong for about three years. 

Similarities between the British and U.S. economies, including a high reliance on services that might benefit from artificial intelligence, mean Skarica expects the improvement to persist in Britain too, similar to what happened in the 1990s when computers came into widespread use in offices.

The extent to which the pickup is driven by AI is a subject of debate.

Robert Wood, chief UK economist at Pantheon Macroeconomics, said that, so far, few British businesses said AI had reduced staffing needs apart from in a few job roles such as junior software developers, raising questions about whether the productivity gains would last.

The Resolution Foundation said the improvement in productivity was broad-based and that it was easier to rule out some possible causes — such as reduced employment in less productive sectors like hospitality and retail due to a higher minimum wage — than to find a single clear driver.

"The UK's productivity recovery has been achieved by the same workers, doing the same jobs, and working in the same sectors," Pittaway said.

(Reporting by David Milliken; Editing by Joe Bavier)