British companies are shedding more jobs than they’re creating because of artificial intelligence, and they’re doing it faster than businesses in other major economies.
That’s what Morgan Stanley found in new research showing UK workers are taking a harder hit from AI adoption than their peers elsewhere. British firms cut a net 8% of their workforce due to AI over the past year. That’s the worst performance among the countries studied, Germany, the United States, Japan, and Australia, and twice what other nations averaged.
Productivity rises while positions disappear
Morgan Stanley looked at companies that have been using AI for at least a year. They focused on five industries including consumer staples and retail, real estate, transport, health-care equipment, and automobiles. For many of these firms, the investment is already paying dividends.
UK companies saw their productivity jump 11.5% on average thanks to AI, with almost half doing even better than that. But American firms got nearly the same productivity boost while actually adding jobs instead of cutting them.
The timing couldn’t be worse for Britain. Businesses are already dealing with expensive payroll costs, barely-there growth, and shaky politics. They’re cutting jobs faster than any time since 2020. Unemployment is approaching a five-year high. Big jumps in minimum wage and national insurance contributions keep forcing companies to rethink their staffing.
Job postings are falling everywhere, but UK firms are pulling back hardest on roles that AI can handle, think software developers or consultants. Bloomberg looked at Office for National Statistics data on online job ads and found something telling. Since ChatGPT launched in 2022, openings for these AI-vulnerable jobs have dropped 37%. Other positions? Down 26%.
Justin Moy runs EHF Mortgages in Chelmsford, northeast of London. He said, “The rising costs of employing staff is driving a growing number of smaller businesses to use AI and outsourcing solutions to fulfill roles traditionally filled by local people who are now missing out on these opportunities.”
Morgan Stanley’s research shows UK employers cut or didn’t refill about a quarter of their roles because of AI. Companies in other countries did roughly the same thing. But there’s a crucial difference, British firms were far less likely to then turn around and hire more people because of the technology.
AI could pull Britain’s economy out of its current rut. The Bank of England and the Office for Budget Responsibility have both talked about the potential. The fiscal watchdog thinks the technology could boost productivity growth by as much as 0.8% within ten years, enough to lift living standards and help government finances.
Young workers face mounting challenges
Right now, though, people are more focused on how AI is making the UK’s job crisis worse. Young people and white-collar workers are getting hit especially hard.
Job openings across the economy have fallen more than a third since 2022. That’s half a million positions gone. A fifth of that drop came from sectors where AI is making the biggest impact, professional, scientific and technical work, administrative services, and IT.
AI is wiping out entry-level office jobs while Labour’s tax policies are making retail and hospitality employers think twice about hiring. Youth unemployment has climbed faster than the overall rate, reaching 13.7% in the three months through November. That’s the highest it’s been since 2020.
Bank of England Governor Andrew Bailey calls AI the next “general purpose technology”, something as transformative as computers or the internet before it. But he warned last month that the UK needs to get ready for the job losses AI will cause. He also pointed out that the technology could mess with how workers usually climb the ladder into senior roles.
The employers Morgan Stanley surveyed said they’re most likely to cut jobs that need two to five years of experience in the UK.
Rachel Fletcher heads up EMEA Sustainability Research at Morgan Stanley in London and wrote the report. She sees the findings as an “early warning sign” of what AI is doing to the job market. The technology’s impact on employment has “come up in a lot of our recent investor conversations,” she said.
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