UK productivity may be far stronger than official data shows

The UK's economic performance has been a central political issue since Labour came to power, with Chancellor Rachel Reeves facing pressure over weak growth and public finances. Official data from the Office for Budget Responsibility (OBR) had downgraded productivity growth projections from 1.3% to 1% annually, contributing to a narrative of stagnation and forcing Reeves to raise taxes in her 2024 budget to meet fiscal rules. However, a new assessment by economists from the London School of Economics (LSE), including Van Reenen and Valero, along with Niki Barbas, challenges this picture. Using tax-based employment estimates from the Resolution Foundation instead of the Labour Force Survey (LFS), which the OBR relies on, they find that productivity has actually grown by about 1.6% annually since mid-2024, a significant improvement from the 0.3% average of the previous decade. The discrepancy arises because the LFS records a 377,000 increase in employees since mid-2024, while tax data shows a decline of 133,000. If the tax-based figure is correct, output per worker has jumped, not flatlined. The authors caution that it is too early to determine the causes, but suggest that artificial intelligence may be starting to boost productivity in some sectors. The findings also highlight the urgent need to fix the UK's flawed jobs data, with a new version not expected until November next year. The report raises questions about whether Reeves was misled by unreliable statistics, and whether the economy is actually performing better than feared.