Britain’s economy has undergone a silent productivity boom over the past two years, according to new research which suggests that official statistics have masked a dramatic improvement in output.
The Resolution Foundation, a think tank, said UK productivity has been expanding by 1.1 per cent a year since late 2024, far above the official estimate of 0.2 per cent from the Office for National Statistics.
Productivity growth, based on a worker’s output per hour, is central to ensuring long-term prosperity and rising living standards, and acts as a stabilising force on a government’s public finances.
Five times the official estimate
The think tank said the UK’s productivity growth had been “respectable” and not as “dismal” as the “flawed” measurements from the ONS suggest. Its higher estimate comes from an analysis of payroll data from HMRC and tax returns from the self employed, which it considers more reliable than official estimates.
“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,” the foundation said.
A separate analysis from the Centre for Economic Performance, which uses the same data sources as the Resolution Foundation, has calculated that annual productivity growth expanded at a rate of 2.37 per cent between the third quarter of 2024 and the first three months of 2026.
A survey under strain
The ONS derives its measure of productivity from its labour force survey, which has been plagued by low response rates since the pandemic and is being revamped to encourage wider participation. It expects to launch a long delayed transformed labour force survey (TLFS) next year.
The statistics agency has reported clear improvement in response levels on the existing survey following a series of interventions, with several waves close to pre-pandemic levels, and says it aims to switch its headline labour market statistics over to the TLFS in 2027.
That matters well beyond the statistical trade. Pay settlements, interest rate decisions and the fiscal headroom a chancellor believes she has all rest on estimates of how much the economy can produce.
Worst run since the 1800s
The UK, along with Italy, has consistently registered the worst productivity growth in the G7 group of advanced economies since the financial crisis, when rates of output per hour fell across Western economies. Average UK productivity growth was 2.1 per cent in the decade before the 2008 crash and has fallen to 0.3 per cent a year in the years since. This is the worst run since the 1800s, according to the Office for Budget Responsibility.
The fiscal watchdog has put the shortfall since the crisis at 1.5 percentage points a year compared with the pre-crisis period, with manufacturing and financial services accounting for three quarters of the decline. Business Matters has previously reported on the Bank of England’s assessment that Britain had endured its worst decade for productivity growth since the 18th century.
Economists have long pondered what is behind the UK’s productivity puzzle, with some suggesting that conventional measurements cannot capture the advances in output made in the internet and digital age.
Not artificial intelligence, and not job switching
Two explanations have been offered for the recent improvement. The first is that the introduction of artificial intelligence into sectors such as IT and financial services is boosting output per hour. The second is that the government’s increase in employment taxes has forced firms to rein back on hiring, lifting productivity in labour intensive, low pay sectors such as leisure and hospitality.
The Resolution Foundation said neither trend is visible in the data, and that the take-up of AI across the economy is not yet widespread enough to draw strong conclusions. That is a notable finding given how quickly small firms have adopted AI tools for quick productivity wins, and given the scale of the tax change, with employers’ national insurance contributions climbing by £28bn in the year to March 2026.
Simon Pittaway, the foundation’s principal economist, said: “Some have suggested that recent productivity gains have been driven by an early AI boom, and workers leaving low-productivity sectors like retail and hospitality. But neither explanation is borne out by the data. Instead, the UK’s productivity recovery has been achieved by the same workers, doing the same jobs, and working in the same sectors.
“This is a broad-based recovery, with 12 of 19 sectors seeing improved productivity growth in the past two years, including info and communications, retail, science, transport and health. This productivity recovery is welcome, but it needs to be sustained and built upon if it’s to lead to big improvements in living standards.”
