Britain’s productivity is quietly recovering – but it’s not AI driving it
Key Points
- UK productivity grew by 1.1% a year on average over the past two years, according to a new Resolution Foundation measure.
- Official ONS figures show a 0.2% fall over the same period, distorted by post-pandemic flaws in the Labour Force Survey.
- The pickup came from faster growth within sectors, not from workers leaving low-paid industries such as retail and hospitality.
- Twelve of 19 sectors improved, and AI-producing firms contribute only marginally more to national productivity than before the AI boom.
UK productivity has grown by 1.1% a year on average over the past two years, according to Resolution Foundation research published on Monday (24 August). This is significantly higher than the 0.2% fall recorded in official statistics.
The Foundation has built an alternative productivity measure after post-pandemic flaws in the Labour Force Survey undermined the Office for National Statistics figures. It draws on HMRC real-time payroll data and self-employment tax returns in place of the survey, then tracks output per hour across the economy.
The alternative measure shows growth of 1.1% a year since the third quarter of 2024, ahead of the average across the late 2010s, and follows a fall of 0.7% a year over the two years before that.
ONS figures show a 0.2% fall over the past two years and a 0.1% fall in the period before.
One explanation for the pickup holds that rising labour costs have squeezed low-paid jobs and shrunk low-productivity sectors such as retail and hospitality. The report finds no evidence for it. The share of employees working in hospitality is no lower now than in the late 2010s, and employment growth in the year to April 2025 ran 2 percentage points stronger in the lowest-paid half of occupations than in better-paid ones.
Almost all of the improvement comes from faster growth within sectors rather than from workers moving between them.
12 of 19 sectors improved their productivity growth over the past two years, including information and communications, retail, science, transport and health.
AI is not driving the growth
Productivity growth is strong in information and communications, the sector that contains Britain’s AI-producing firms, but it contributes only marginally more to national productivity than it did in the late 2010s, before the AI boom.
The share of businesses using AI has doubled in three years, rising from 23% in September and October 2023 to 46% in June 2026. Only one in twenty firms reports using the technology extensively.
“Britain’s dismal productivity record since the global financial crisis explains a lot of its economic stagnation and weak living standards growth. But 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, Principal Economist at the Resolution Foundation.
The Foundation said the recovery needs to be sustained and built on before it translates into stronger economic growth and higher living standards, and points to Chancellor John Healey’s first Budget.
