Resolution Foundation data shows UK productivity grew 1.1% annually over two years, with retail among 12 sectors posting gains. The rebound may be masked by flawed ONS employment surveys.
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Britain's retail sector is among the industries powering a surprise productivity revival that official employment figures may have hidden. New analysis from the Resolution Foundation shows UK productivity grew at an average annual rate of 1.1% in the two years through June 2026. That marks a sharp turnaround from the 0.7% annual decline recorded in the prior two years.
The improvement is broad-based. Retail is one of 12 industries out of 19 to post productivity gains, alongside communications, science and healthcare. The findings suggest retailers are generating more output from their workforces at a time when wage bills and employment costs have climbed sharply.
Retailers have spent years cutting head office roles, restructuring store estates and investing in automation. They have also scrutinised staffing levels as the minimum wage and employer national insurance contributions rose. Yet the Resolution Foundation said the productivity rebound does not simply reflect jobs disappearing from lower-productivity sectors such as retail and hospitality.
Senior economist Simon Pittaway said the recovery came from broadly “the same workers, doing the same jobs, and working in the same sectors”. The quote is verbatim from the source.
The think tank's findings also challenge official data that paints a weaker picture. The Office for National Statistics has struggled with its Labour Force Survey after response rates collapsed following the pandemic. The ONS now recommends using payroll-based Real Time Information data as the best measure of recent productivity movements while it overhauls its methodology.
Its latest estimates using administrative data showed output per hour was 0.7% higher year on year in the second quarter of 2026. That compares with a 0.2% decline under the Labour Force Survey measure. Output per worker increased 1.4%.
The gap matters for retail. Productivity growth helps absorb higher wage costs without passing the full burden to shoppers through price increases. Retailers have turned to self-checkouts, warehouse automation, AI, improved forecasting and leaner store operating models to lift output per hour.
Economists have cautioned against attributing the productivity boost solely to AI. The Resolution Foundation found the gains extended into sectors where widespread AI-driven staffing reductions have yet to materialise, including retail.
Morgan Stanley chief UK economist Bruna Skarica estimates private-sector productivity growth is now running at around 1.8% a year. That is close to rates recorded before the financial crisis.
The ONS is developing a new approach to productivity measurement and said further details on its methodology would be published in September.
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