Early signs of technology-driven improvements in productivity growth could herald a sustained strengthening in the UK's economic outlook, analysts have said, marking a potential turnaround after years of underperformance.

Private sector productivity grew by 1.8 per cent in the second quarter compared with a year earlier, up from 1.2 per cent previously, according to an analysis of official data — the UK measures productivity primarily as output per hour, compiled by the Office for National Statistics — by investment bank Morgan Stanley. The rise extended gains recorded since 2024 and reduced the UK's productivity growth gap with the United States, though the UK continues to produce less output per hour than the US, France and Germany.

The reasons behind the upsurge remain heavily contested, but some analysts point to increasing adoption of artificial intelligence in sectors including information technology and business services as a contributing factor. The debate echoes past transitions in general-purpose technologies: as with computers in the 1980s and 1990s, when economist Robert Solow famously observed that the machines were visible everywhere except in the productivity statistics, economy-wide gains from AI may take years to become fully apparent in official figures.

If the recent productivity acceleration can be sustained over several years, analysts say it could bolster incomes and help alleviate some of the strains on Britain's public finances. That matters because productivity growth is the main long-run driver of wage growth and living standards, and because a larger tax base eases the pressure on government budgets without rate rises.

The UK has experienced persistently weak productivity growth since the 2008 global financial crisis, a long-running stagnation known among economists as the "productivity puzzle". Before the crisis, UK productivity had grown by around 2 per cent a year on average; the subsequent stagnation has weighed on the country's economic performance relative to international peers.

With the causes still disputed, analysts will be watching whether the gains hold up across coming quarters, whether they broaden beyond IT and business services into the wider economy, and how the figures fare through the routine revisions that official statistics undergo.

The original reporting is by Sam Fleming and Amy Borrett at the Financial Times, via Marginal Revolution.