Economists say UK productivity is picking up, with AI a possible factor

In short: Economists say the UK is showing early signs of faster productivity growth, and some think wider AI use may be helping.

What's going on

New analysis of official UK data suggests the private sector is getting more productive. Morgan Stanley estimates private sector productivity rose 1.8% in the second quarter compared with a year earlier, up from 1.2% previously.

Productivity is basically how much a worker produces in an hour. You can think of it like a bakery making more loaves with the same number of staff and ovens. Economists say the recent rise continues improvements seen since 2024 and narrows the gap with the US.

Some analysts think more AI is part of the story, especially in areas like information technology and business services. The Bank of England’s regional agents, who collect reports from firms around the country, recently said AI use has been lifting productivity in sectors including software, finance, customer service, professional services and creative work.

There is also a data wrinkle. The UK’s usual workforce survey has had low response rates, so economists are paying more attention to other measures, including payroll tax records collected through the Pay As You Earn system.

What to watch

Economists do not agree on how much of the improvement is really down to AI yet. Some point out that big productivity gains have also shown up in sectors like accommodation and retail, which are not known for heavy AI use.

Another question is whether higher productivity is coming from better tools, or from firms hiring fewer people because employment has become more expensive. Analysts also say it is too early to expect the UK’s budget watchdog to change its long-term forecasts, which matter for future tax and spending plans.

Source: Financial Times