New data from the ONS (Office of National Statistics) shows that the UK’s historically low productivity is improving steadily – however, the retail sector is still experiencing negative productivity growth.
According to the ONS’ Productivity Flash Estimate, output per hour grew by 0.4% in Q1 2026 compared to Q1 2025. Output per worker was down 0.1% quarter-on-quarter, because gross value added (GVA) increased by 1.1%, which is a slower rate than the number of workers (1.2%).
The information and communication industry made the largest contribution to this growth, caused by a large increase in GVA with a smaller increase in hours worked, while human health and social work activities made the biggest negative contribution to productivity growth. Wholesale & Retail experienced a fall in productivity growth of 0.7%.
Although the figures show a steady upwards trajectory, they are nonetheless weaker than pre-2008 levels.
Why has UK productivity been weak?
The 2008-2009 global financial crash marked a negative turning point for UK productivity – which is typically measured as output per hour – ending a period of growth. One key reason for this is that business investment – particularly in capital equipment, infrastructure, and technology – stalled, limiting improvements in workers’ efficiency. This was then compounded by a long “tail” of weak diffusion of innovation from leading companies and skills mismatches in the labour market.
The financial crisis also led to tighter credit conditions, reducing firms’ ability to invest and expand, while subsequent uncertainty – especially surrounding Brexit – acted as a barrier to trade. These structural factors, combined with a shift toward more flexible but often lower-productivity forms of employment, such as part-time or self-employed work, as well as regional imbalances and underinvestment in transport and R&D, have created the UK’s prolonged productivity slowdown.
Retail’s position
A combination of factors has caused retail productivity to lag behind other sectors as overall productivity regains ground. Its labour-intensive model means productivity gains are harder to unlock than in tech-led sectors, where investment has been high and output can grow rapidly without a proportional increase in hours worked.
The shift to omnichannel has also weighed on measured productivity – in the short-to-medium term at least – as retailers absorb the operational costs of fulfilment, returns and store-based picking. For many retailers, a large legacy store estate remains a significant drag.
The analysts’ view
Describing the UK’s historically low productivity as a “slow-burning crisis”, Laurence McHauser, partner at McKinsey & Company, said the improvement in productivity could lead to an improvement in UK living standards. “This uptick in productivity is critical for the economy and potentially good news,” he said. “It comes after decades of anemic productivity growth, which continues to be the most important factor affecting UK living standards in the long term.”
However, he warned that UK businesses need to look hard at their systems and operations in order to build on this growth. “Part of the answer is in improving the day-to-day management practices of organisations,” he said. “Productivity gains do not just come from frontier breakthroughs. They also come from companies adopting better ways of working and putting in place the systems needed to translate strategic intent into execution.”
The UK may finally be turning a corner on productivity – but until retail finds its footing, the recovery will remain uneven at best.
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