Right now, the UK is facing a downgrade to its projected productivity growth that analysts say could deliver a £20 billion blow to public finances.
The Office for Budget Responsibility is expected to cut its productivity growth forecast by approximately 0.3 percentage points in its outlook that accompanies the government’s autumn budget. This follows 15 years in which productivity has barely grown.
The So What
While the outlook is challenging, it also signals huge potential for businesses and investors with the vision to reverse the trend.
“Catch-up growth presents an opportunity,” says Raoul Ruparel, senior director at BCG’s Centre for Growth. “Britain isn’t alone in facing this productivity challenge, but it is behind the curve. Learning what other countries are doing at scale and spreading that across the UK economy can make a massive difference.”
An OECD breakdown of GDP per hour worked shows the UK lags behind Germany, France, and the US. Over the past 15 years, the UK’s middle-tier firms have particularly struggled to grow their productivity, creating a widening gap between frontier companies and the rest.
This disparity represents an opportunity.
“The UK has some of the world's most innovative firms,” notes Ruparel. “The challenge is finding a way for less productive firms to adopt best practice and cutting-edge technologies. This is particularly crucial in capturing the full economic benefits of AI and other tech innovations.”
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Now What
Reversing the UK’s downward productivity trend requires coordinated action across three pillars, each requiring cooperation between businesses and policymakers.
Infrastructure and Capital. The UK’s long-term underinvestment (from both the public and private sector) has significantly impacted productivity and economic growth.
Overall investment in systems such as transport, energy, and communications averaged just 19% of GDP in the 40 years to 2019—the lowest of the G7 countries, according to the National Infrastructure Commission. That’s something the UK government has committed to change.
A 2025 study by BCG’s Centre for Growth found that infrastructure investment over the next five years is now set to be close to 300% of the previous five years—the largest uplift in more than 50 years—provided supply chains can match this demand. Ruparel notes that this is a good start given that raising investment, particularly fixed capital investment, is a central plank of any strategy to boost productivity.
Policymakers can also consider further steps to ensure these ambitious goals are deliverable. For example, a transparent government strategy to support business investment and bring down costs by reducing regulatory burdens and energy prices, could help unlock the country's growth potential.
In the infrastructure space specifically, utilizing government underwriting schemes to insulate against tail risks and using public-private partnerships to provide stable return profiles could help mobilize private capital at a time when fiscal capacity is constrained.
Technology Diffusion. Over the past 15 years, the UK has been slow to roll out new innovations and best practice from more productive firms to less productive ones. This applies between firms in a single sector, across different sectors, and across regions (especially those outside of London). Repeating this failing when it comes to AI, would mean missing out on many of the benefits, both at a firm and national level. Businesses, of all sizes, must move beyond experimentation to systematic AI implementation.
Reimagining workflows, upskilling talent, and driving organizational change requires a hands-on approach from CEOs, with disciplined execution and a clear focus on value. For small and medium sized firms, there will need to be systematic support from the government to help them to understand sector-specific use cases and to upskill a diverse workforce that is already stretched. This doesn’t necessarily require long retraining programmes or requalification, as a first step it could take place through micro-level workshops demonstrating how business leaders and workers can safely and practically deploy AI in their day-to-day work.
Skills and Human Capital Development. While the UK has traditionally had a skilled and flexible workforce, others have caught up. The data reveals the scale of the challenge and suggests a mismatch between workforce demand and supply of qualified workers:
- On the one hand, 37% of UK workers are over-qualified for the roles they perform, an OECD study found.
- Yet, on the other hand we see that the EU average investment in training per employee is now double that of the UK, according to the Learning and Work Institute.
- This suggests some combination of the UK not producing the right skills and/or not getting the workers to where they are best suited.
Addressing this mismatch requires greater investment in training, including better integration between firms and regional skills policies so businesses can tailor offerings to likely demand. Employers also need to facilitate better allocation of workers to roles where they can maximize their capabilities.
