Key Points
- Productivity Rebound: UK output per hour grew by an average of 1.1% per year in the two years up to the end of the June quarter of 2026, reversing a previous average annual decline of 0.7%.
- Exceeding Pre-2020 Levels: The 1.1% annual growth rate surpasses the 0.7% average annual rate recorded between 2016 and 2019.
- Alternative Data Utilised: The Resolution Foundation used HMRC administrative data rather than relying solely on the Labour Force Survey (LFS), citing declining response rates in traditional surveys.
- ONS Measures Alignment: The Office for National Statistics (ONS) Workforce Jobs measure aligns with the 1.1% annual growth rate, while ONS PAYE Real Time Information data shows a 0.7% year-on-year increase in output per hour and a 1.4% increase in output per worker for the June quarter.
- Broad-Based Sector Growth: Sectoral analysis reveals that 12 out of 19 major industries contributed to the improvement, largely driven by workers becoming more productive within their existing roles rather than structural employment shifts.
- Ongoing Output Deficit: Output per hour remains approximately 5% below its pre-pandemic trajectory, representing an estimated £150 billion in lost annual economic output, or roughly £4,500 per worker.
London (North London News) August 24, 2026 –According to new research published by the Resolution Foundation in its Macroeconomic Policy Outlook: Q3 2026, the recovery in UK productivity has gathered pace, indicating that the broader economy is performing more strongly than traditional labour market indicators suggest. As reported by the research team at the Resolution Foundation, output per hour grew by an average rate of 1.1% per year in the two years to the end of the June quarter of 2026. This upward trajectory marks a reversal from the preceding two-year period, which saw output per hour contract by an average of 0.7% annually. Furthermore, the recent 1.1% annual expansion surpasses the 0.7% average annual growth rate documented between 2016 and 2019.
The analysis highlights a divergence in data collection methodologies. The Resolution Foundation based its preferred productivity metric on administrative data sourced from HM Revenue and Customs (HMRC), moving away from a sole reliance on the ONS Labour Force Survey (LFS), which has encountered falling response rates in recent years.
Supporting this methodology, the Office for National Statistics (ONS) Workforce Jobs measure similarly recorded an annual productivity growth rate of 1.1% over the same timeframe.
In separate figures released by official statistics authorities, the ONS administrative-data estimates indicated that output per hour was 0.7% higher year-on-year in the quarter ending June 2026, whilst output per worker expanded by 1.4%.
The ONS currently recommends its PAYE Real Time Information-based methodology as the most reliable current indicator for monitoring shifts in UK labour productivity.
Which sectors are contributing to the UK output per hour growth?
The Resolution Foundation’s assessment details that the productivity rebound has been broad-based across the economy. Out of 19 major industrial sectors evaluated, 12 delivered positive contributions to the overall improvement.
The report specifies that the principal driver of this expansion was an increase in internal efficiency—workers becoming more productive within their respective sectors—rather than a structural reallocation of employment from low-productivity industries to high-productivity fields.
Despite these positive figures, the UK continues to face long-term structural shortfalls relative to historical trends. The Resolution Foundation estimates that overall output per hour remains approximately 5% below its pre-pandemic trajectory.
According to the think tank’s calculations, this shortfall equates to roughly £150 billion in lost annual economic output for the UK, or approximately £4,500 per individual worker.
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Background of the particular development
The performance of UK productivity has been a focal point of economic policy debate since the 2008 global financial crisis, a period frequently referred to by economists as the “productivity puzzle.” Prior to 2008, UK labour productivity grew at an average rate of roughly 2% per year.
Following the financial crisis, growth slowed significantly, averaging less than 1% annually through the 2010s.
The arrival of the COVID-19 pandemic in 2020 introduced further volatility into national economic measurements. Supply chain dislocations, widespread hybrid working shifts, structural labor shortages, and changes in statistical sampling techniques complicated the accurate measurement of output per hour.
In response to declining completion rates for the traditional household-based Labour Force Survey, statisticians and economic research institutes increasingly turned to real-time administrative datasets, such as HMRC PAYE records, to assess employment and output levels across the UK economy.
Prediction: How this development can affect UK workers and policymakers
This development is likely to impact two key target audiences: UK workers and economic policymakers.
For the UK workforce, sustained growth in output per hour provides a theoretical foundation for real wage growth over the medium to long term. Historically, persistent gains in productivity allow firms to increase wages without generating inflationary pressures.
If the broad-based efficiency gains observed across the 12 sectors continue, workers may experience higher real earnings and improved living standards. However, because overall output remains 5% below pre-pandemic trends, individual workers continue to bear the indirect cost of historical stagnation, reflected in the estimated £4,500 per worker output deficit.
For policymakers, including HM Treasury and the Bank of England, the confirmation of a productivity recovery via administrative data suggests higher underlying potential supply within the UK economy.
If the economy can sustain a 1.1% annual productivity growth rate, central bankers may view economic expansion as less inherently inflationary, potentially altering decisions regarding interest rate trajectories. Simultaneously, government officials may utilize these administrative data insights to target sector-specific supply-side policies aimed at closing the remaining £150 billion output gap.
