Britain’s retail sector is among the industries driving a surprise rebound in productivity that may have been masked by unreliable official employment data.
New analysis from the Resolution Foundation suggests UK productivity has grown by an average of 1.1 per cent a year over the two years to June 2026, marking a sharp turnaround from the 0.7 per cent annual decline recorded during the previous two years.
Crucially for retailers, the improvement appears to be broad-based rather than concentrated in highly digitised sectors, with retail among 12 of 19 industries to have recorded productivity gains, alongside communications, science and healthcare.
The findings suggest retailers are managing to generate more output from their workforces at a time when the sector has been under intense pressure to control employment costs.
Businesses across the high street have spent the past several years cutting head office roles, restructuring store estates, investing in automation and technology and scrutinising staffing levels as wages and other employment costs have climbed.
However, the Resolution Foundation said the wider productivity rebound did not appear simply to be the result of jobs disappearing from lower-productivity sectors such as retail and hospitality.
Instead, senior economist Simon Pittaway said the recovery had been achieved by broadly “the same workers, doing the same jobs, and working in the same sectors”.
That could provide some encouragement to retailers facing continued pressure to protect margins while maintaining investment in stores, ecommerce, supply chains and technology.
The think tank’s findings also raise questions over the scale of Britain’s long-running productivity problem.
Official figures have painted a considerably weaker picture, in part because of problems with the Office for National Statistics’ Labour Force Survey following a collapse in response rates after the pandemic.
The ONS itself 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 per cent higher year on year in the second quarter of 2026, compared with a 0.2 per cent decline under the Labour Force Survey measure. Output per worker increased 1.4 per cent.
The gap is significant for the retail industry, where productivity growth is critical to absorbing rising wage bills without passing the full cost on to shoppers through higher prices.
Retailers have increasingly turned to self-checkouts, warehouse automation, AI, improved forecasting and leaner store operating models in an effort to increase sales and output for every hour worked.
But economists have cautioned against attributing the latest productivity boost solely to AI. The Resolution Foundation found the gains extended into sectors including retail where widespread AI-driven reductions in staffing have yet to materialise.
Morgan Stanley chief UK economist Bruna Skarica estimates private-sector productivity growth is now running at around 1.8 per cent a year, 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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