UK Productivity Shows First Sustained Gains Since 2008, Economists Say — BigGo Finance

Britain’s economic productivity is beginning to show signs of sustained improvement, according to economists, potentially marking the end of a prolonged slump that started around the 2008 financial crisis and appeared to deepen after the Covid-19 pandemic.

Rising productivity — defined as the amount of economic output generated per hour worked — is critical for lifting living standards and offsetting fiscal pressures from an ageing population and increasing defense spending.

Estimates published Monday by the Resolution Foundation think tank showed that annual growth in output per hour averaged 1.1% over the two years through the end of June, a sharp reversal from an annual decline of 0.7% in the preceding two-year period. That compares with an average increase 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.

The discrepancy stems from measurement problems at the Office for National Statistics. Until recently, the agency’s main productivity gauge relied on a workers survey that suffered a steep drop in response rates after the pandemic. In June, it recommended switching to tax data, which provides more reliable employee counts but lacks detail on hours worked and self-employment.

Economists have since developed their own estimates. Bruna Skarica, chief UK economist at Morgan Stanley, believes private-sector productivity growth has climbed to 1.8% a year, close to the pace recorded before the global financial crisis.

“We are seeing similar trends as we saw in the United States,” she said, noting that the American improvement began roughly a year earlier.

In the US, productivity growth accelerated after the pandemic and has remained strong for about three years. The similarities between the two economies, including a heavy reliance on services that could benefit from artificial intelligence, lead Skarica to expect the gains to persist in Britain as well, echoing the productivity boost of the 1990s when computers became widespread in offices.

The following table summarizes the shifting productivity trajectory:

Note: Figures are based on Resolution Foundation estimates using tax data.

However, the extent to which artificial intelligence is driving the pickup remains a subject of debate. Robert Wood, chief UK economist at Pantheon Macroeconomics, cautioned that few British businesses have so far reported that AI reduced staffing needs, except in a handful of roles such as junior software developers. That raises questions about whether the productivity gains will endure.

The Resolution Foundation said the improvement was broad-based, and that it was easier to rule out some possible causes than to identify a single clear driver. The think tank noted that reduced employment in less productive sectors like hospitality and retail, potentially due to a higher minimum wage, did not appear to explain the trend.

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

If the trend holds, it would represent a significant turning point for an economy that has struggled with sluggish output per hour for nearly two decades. Productivity growth is widely viewed as the most reliable path to sustainable wage increases without fueling inflation, making the latest data a potentially important signal for the Bank of England as it assesses the economy’s underlying momentum.

For investors, a genuine productivity revival could support sterling and UK equities, particularly in service-oriented industries that stand to benefit most from efficiency gains and technology adoption. It may also ease some of the fiscal strain facing the government by boosting tax revenues without requiring higher rates.