What is the latest on UK productivity?
At the risk of sounding like a typical two-handed economist, it all depends. Specifically, much depends on the definition of employment we use as the basis of our calculations. HMRC measures payroll employment, which showed a decline of 0.7 per cent between July 2024 and the end of 2025. The comparable ONS measure for employees showed a rise of 1.4 per cent over the same period. For a given change in GDP, the HMRC data indicate that output per employee rose by 1.6 per cent in 2025, whereas the ONS based figures point to a decline of around 0.1 per cent.
We thus have to dig below the surface to understand more about what is going on. The HMRC data is administrative and is as near to a regular employment census as we can get for payroll employees, whereas the ONS series is survey-based and therefore subject to sampling variability. What is more, the relationship between the two measures was relatively stable over the period 2015 to 2019 but the two have since diverged, which has added to concerns surrounding the quality of survey-based methods since the pandemic. In this sense, the productivity figures represent not so much a puzzle as a measurement problem.
So is there still a productivity problem?
There most definitely is. Whether we measure output per job, per hour or per worker, it is indisputable that growth has slowed over the past 15 years. When productivity stalls, pay growth weakens, household incomes stagnate and fiscal pressures intensify as tax revenues underperform relative to spending demands. All of these problems are manifest in the current policy environment. Weak productivity growth has been one of the root causes of the cost-of-living crisis that currently dominates the political agenda. Admittedly, many of the proximate causes represented exogenous shocks, but weak productivity growth left the economy far less resilient to those shocks. In an environment where productivity was growing in line with its historical average, firms would have been better able to absorb part of any cost increases through efficiency gains, allowing wages to rise without generating inflation. But in a low-productivity world, any attempt to maintain real incomes through higher nominal pay risks feeding directly into higher prices.
Another consequence of this low productivity environment is to generate more acute distributional conflict. With little productivity growth to expand the overall economic pie, gains for one group tend to come at the expense of another – for example, taxpayers versus recipients of public services or even younger workers versus older. To give a sense of output foregone, had productivity growth resumed its pre-2008 trend from 2010 onwards, output per head would now be 17 per cent above current levels – and it would be reasonable to expect that real wages would be similarly higher. Putting this in an even longer-term context, productivity growth of 2 per cent per year means that output per worker doubles roughly every 35 years; at 0.2 per cent, it would take more than three centuries. This is bad news for workers hoping for decent wage increases; it is also bad news for a government hoping to balance the books, especially when demographic pressures are placing increased demands on the public purse.
The post-2010 slowdown is therefore not a cyclical inconvenience but a structural break with profound implications for wages, public services and the UK’s long-term economic capacity.
Where are these green shoots you mentioned?
This is a fair challenge. No policymaker wants to replay the experience of Norman Lamont, who spoke of the green shoots of recovery just before the UK was forced out of the Exchange Rate Mechanism (ERM) in 1992. But there are at least plausible economic reasons why productivity growth could be poised to strengthen.
First, labour hoarding may now be reversing. During the pandemic, many firms retained staff despite weak output growth, partly because recruitment had become difficult, which depressed measured output per worker. Evidence to suggest the process may be reversing comes from data on redundances, which ticked up in the course of 2025. A period of stable demand and falling staffing levels will produce a mechanical rise in productivity. Of course, this does not represent a “good” outcome if it simply results in higher unemployment.
On a more positive note, capital deepening may be starting to pick up. The post-2008 period was characterized by persistently weak business investment. More recently, investment has been supported by full expensing allowances and a gradual easing of supply bottlenecks. Between 2022 and 2025, business investment grew at an annual average rate of 3.6 per cent versus 2.2 per cent between 2015 and 2019. While this is not a stellar outcome, and corporates remain very cautious with regard to spending, it does represent an improvement relative to the pre-pandemic period.
Then, of course, there is the potential offered by digital technologies. There is lots of survey evidence to suggest that companies are adopting various forms of new technology, ranging from large language models to chatbots. It is entirely possible that this will give a productivity boost although it may take time to become evident in the data. Firms must reorganise production processes, retrain workers and redesign workflows before efficiency gains materialise. If that adjustment phase is now underway, we may be on the verge of a productivity pickup – not a revolution, as prophesied by some tech evangelists, but hopefully sufficient to give a meaningful economic boost.
None of this guarantees a sustained revival. Productivity accelerations require sustained investment, innovation and competitive pressure. But the combination of labour market adjustment, renewed capital formation and technological diffusion provides a coherent economic basis for cautious optimism – even if I remain wary of proclaiming evidence of “green shoots” too soon.