Forget the hype and gloom – Britain is experiencing a broad-based productivity recovery 24 August 2026 Output per hour has increased at a respectable annual rate of 1.1 per cent on average over the past two years, rather than the dismal 0.2 per cent fall implied by flawed official statistics, with the UK’s productivity recovery present throughout the economy rather than via an AI boom or a retail-and-hospitality bust, according to new Resolution Foundation research published today (Monday). Productivity growth matters hugely for understanding the UK’s economic performance and prospects for living standards growth, but official ONS figures cloud the truth due to post-pandemic flaws in the Labour Force Survey . To correct for this, the Foundation has produced an alternative productivity measure using more reliable RTI payroll data from HMRC and tax returns from self-employment. The report then uses this measure to look at productivity trends across different sectors of the economy. The Foundation’s alternative measure paints a very different productivity picture across Britain – growing by a respectable 1.1 per cent a year on average since Q3 2024 (better than the late 2010s average), following a 0.7 per cent fall on average over the two years prior. ONS figures show a fall of 0.2 per cent over the past two years, and a 0.1 per cent fall before that. One publicly discussed explanation of this productivity recovery is that rising labour costs have hit low-paid jobs and shrunk low-productivity sectors like retail and hospitality. But the report finds that not to be the case. Almost all of the aggregate productivity pickup has come from faster growth within sectors, not from workers moving between them. For example, the share of employees working in hospitality is no lower today than it was in the late 2010s. Nor has there been a shake-out of low-paid workers across industries. In the year to April 2025, employment growth was 2 percentage points stronger in the lowest-paid half of occupations than in better-paid ones. 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. The authors caution too against prematurely chalking it up to AI. Productivity growth is strong in info and communications – which includes Britain’s AI-producing firms – but the sector is contributing only marginally more to aggregate productivity than in the pre-AI late 2010s. Furthermore, while the share of businesses in all sectors using AI has doubled in the past three years (from 23 per cent in September-October 2023 to 46 per cent in June 2026), only one-in-twenty firms today report using it extensively. The Foundation notes that while welcome, the UK’s productivity recovery will need to be sustained and built upon if it’s to translate into stronger economic growth and higher living standards. Simon Pittaway, Principal Economist at the Resolution Foundation, said: “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. “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 nether 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 productivity recovery is welcome, but it needs to be sustained and built upon if it’s lead to big improvements in living standards. That should be front of mind for the Chancellor John Healey as he prepares for his first Budget.” Notes to Editors 1 per cent is the average four-quarter growth rate of GDP per hour in the two years of data between Q3 2024 and Q2 2026. Other average rates of productivity growth have been calculated on the same basis. This measure produces a different figure for recent productivity growth than that reported in Barbas, Valero & Van Reenan (2026), which calculates the annualized growth rate between Q3 2024 and Q1 2026.
