AI lifts UK productivity as hiring strains deepen

Britain’s economy is showing a K-shaped recovery since Labour took office in 2024, with stronger growth, investment and market performance at the top while the labor market weakens. June growth came in at 0.3%, business investment rose 1.7%, and the FTSE 100 has gained over six successive quarters, but private-sector wage growth excluding bonuses slowed and unemployment climbed to 4.9% from April to June.

Research from economists at the London School of Economics points to “an annualized productivity growth of 1.6 per cent between 2024 Q3 and 2026 Q1, compared with only 0.3 per cent over the decade preceding 2024 Q3.” The same analysis draws on administrative tax records suggesting employment fell by 133,000, in contrast to official statistics showing an increase of 377,000.

AI appears to be reshaping hiring, especially in lower-paid and exposed roles. Bank of England economists found vacancies falling fastest in professions vulnerable to AI substitution, while customer service advertisements have declined by an average of 23% a year since 2023. LinkedIn said applications rose 45% last year and it was processing 11,000 a minute, intensifying screening burdens for employers and applicants.

Policy responses are lagging the shift. Current labor rules, higher employer National Insurance costs and stale political explanations risk leaving young people, career changers and AI-exposed workers outside the productivity gains, even as apprenticeship reforms for under-25s offer a limited start.