UK Productivity Surge Signals Economic Turnaround, Study Finds

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(Bloomberg) — Britain is seeing early signs of a long-awaited turnaround of its productivity woes, according to an alternative measure that suggests output per hour worked has risen at a pace not seen since before the financial crisis.

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The Resolution Foundation said a “blistering” productivity surge has been masked by problems with official statistics and pointed to encouraging indications of a clearout of “zombie” firms that contribute little to the economy. 

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Productivity growth, when measured using the Office for National Statistics’ troubled Labour Force Survey, was just 1.1% in the year through the third quarter of 2025. But the figures look far better when based on employee payrolls data that are more trusted by economists, the think tank said.

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“Productivity was essentially flat between the pre-pandemic peak of Q4 2019 and post-pandemic trough of Q1 2024, but it has grown by a blistering 3.4% in the six quarters after that, a rate not seen since before the financial crisis,” the Resolution Foundation said in a report published Monday. Those gains are more than the previous seven years combined, it added.

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The analysis will be welcomed by Prime Minister Keir Starmer, for whom raising productivity is crucial if his Labour government is to deliver on a pledge to improve living standards and plow money into cash-starved public services and infrastructure. 

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A long-promised pickup has eluded Britain for much of period since the financial crisis, with Brexit widely seen as adding to the problem. On a GDP per capita basis, Italy had caught up with Britain as of 2024, OECD figures show, and the UK still produced less per person than every other Group of Seven economy bar Japan based on purchasing power parity.

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Starmer has pledged to boost economic growth to the highest in the G-7 — a goal Britain is still far from achieving. While economists expect growth to come in at 1.4% in 2025, it still lags behind the US and the rates seen before the financial crisis.

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The Resolution Foundation said the productivity boost has coincided with signs of increasing business dynamism after a slowdown in economic churn since the financial crisis.

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Creative destruction is seen as an important ingredient for economic renewal, clearing out moribund firms and moving workers into stronger businesses and sectors. Higher energy prices, interest rates and wage costs are making survival more difficult for zombies.

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“Following post-pandemic volatility, firm insolvencies are now running at rates not seen in a decade, and the share of jobs lost to closing firms in 2024 was the highest since 2011,” the report said.

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