Bank of England pours cold water on AI productivity boom

The Bank of England has cautioned that artificial intelligence has failed to deliver significant productivity gains for UK businesses over the past three years, despite substantial investment. According to the central bank's latest Monetary Policy Report, AI has contributed only around 0.5% to UK productivity since early 2024, indicating a modest annual increase of just 0.1 to 0.2 percentage points.

Even sectors deemed most receptive to AI, such as information and communications, have yet to surpass pre-pandemic productivity levels. The bank's analysis suggests that AI's economic impact is primarily driven by companies developing and deploying the technology rather than businesses harnessing it to boost efficiency. While AI-related activity accounts for nearly a fifth of UK GDP growth, much of this appears to stem from upstream investment and implementation rather than broader economic gains.

The bank warns against overestimating AI's role in recent productivity improvements, pointing out that much of the growth may result from reduced hiring and higher labor costs as companies adjust to the post-pandemic economy. Despite AI's promise of job displacement, firms surveyed by the bank report no overall impact on employment.

However, AI is not entirely without effect, as surging demand for AI products has driven up export prices in Asia, increasing import costs for Britain. Financial watchdogs are also concerned about the disconnect between AI spending and actual productivity gains, comparing the current spending spree to the dotcom boom of the 1990s.

Despite these concerns, businesses remain optimistic, with surveys predicting AI will add around 0.9 percentage points to annual productivity growth over the next three years, primarily through faster output but slower employment growth.