According to Bloomberg Business, Morgan Stanley research shows the UK is experiencing the highest rate of AI-driven job losses among major economies. British companies reported a net 8% job loss due to AI over the past year, which is double the international average and higher than in the US, Germany, Japan, and Australia. This comes despite UK firms seeing an average 11.5% productivity boost from the technology. The report surveyed firms in five industries, including retail, transport, and healthcare, that have used AI for at least a year. Official UK data shows vacancies have fallen by over a third since ChatGPT’s 2022 launch, with AI-exposed sectors like IT and professional services leading the decline. Youth unemployment has now hit 13.7%, its highest level since 2020.
The Productivity Paradox
Here’s the weird thing. The UK’s productivity gains from AI are virtually identical to those reported in the US. We’re talking about an 11.5% jump. That’s huge. Almost half the companies saw even bigger boosts. So the technology is clearly working and delivering real value for British businesses. But in the US, that productivity surge led to more jobs being created than destroyed. In Britain, it’s the opposite. The net result is a sharp 8% cut. So what gives? It seems the UK’s economic context is turning a universal tool into a specifically sharp blade for cutting headcount.
A Perfect Storm for Job Cuts
The report makes it clear this isn’t just about AI. It’s about AI hitting a labor market that’s already under intense strain. Employers are grappling with large minimum-wage hikes, increased national insurance costs, slow growth, and political uncertainty. When you’re staring at rising payroll costs and an uncertain future, a tool that promises an 11% productivity lift looks less like an innovation and more like a lifeline. It becomes a reason not to backfill a role, or to streamline a team. As one mortgage director put it, smaller businesses are using AI and outsourcing to fulfill roles that would have gone to local people. The ONS vacancy data shows they’re specifically pulling back on postings for AI-exposed roles like software developers, which have plummeted 37% since 2022.
Squeezing The Next Generation
This is where it gets really concerning. Morgan Stanley found UK employers are most likely to cut early-career jobs requiring two to five years of experience. Think about that. Those are the crucial entry and progression points for white-collar careers. Bank of England Governor Andrew Bailey warned about this, saying AI could disrupt the talent pipeline that helps workers move into senior roles. Now we’re seeing it happen. Combine that with Labour’s proposed tax policies potentially weighing on retail and hospitality hiring, and you’ve got young workers getting hit from all sides. The youth unemployment rate soaring to 13.7% isn’t a coincidence; it’s a direct consequence. They’re losing the starter jobs that AI can automate, and the traditional fallback sectors are tightening up too.
An Early Warning With No Easy Answers
The report’s author called this an “early warning sign,” and that feels right. The long-term promise is still there—the Office for Budget Responsibility thinks AI could lift UK productivity growth by 0.8 percentage points in a decade. That’s a game-changer for living standards. But the short-term pain is being distributed in a brutally unequal way, and the UK’s particular economic ailments are amplifying it. The question isn’t whether AI will create new jobs eventually. It probably will. The question is what happens to a generation of workers in the meantime, and whether the political and economic system can adapt fast enough. For a deeper look at how technological disruption is reshaping industries, the BBC has recently explored similar tensions. For now, the UK’s AI revolution has a distinctly human cost.
