United Kingdom: Selected Issues

International Monetary Fund

No 2026/173, IMF Staff Country Reports from International Monetary Fund

Abstract: This Selected Issues paper focuses on unlocking AI-led productivity growth in the United Kingdom. AI presents a significant opportunity to address the United Kingdom’s persistent productivity slowdown, particularly given its strong specialization in high-skill, knowledge-intensive service sectors where AI adoption offers the greatest potential gains. However, realizing these benefits depends on strengthening enabling conditions, including digital infrastructure, innovation financing, regulatory clarity, workforce skills, and trade openness. While the government’s broader growth strategy appropriately emphasizes reforms to planning, energy markets, and scale-up financing, these measures should be complemented by targeted AI-specific policies that address regulatory uncertainty, skills shortages, and supply-chain resilience. Model-based analysis calibrated to the UK suggests that halving regulatory constraints and expanding the supply of AI-related skills could increase AI-driven output gains by approximately two-thirds relative to the baseline. The findings also highlight the strategic importance of investing in a robust domestic AI ecosystem, as dependence on foreign AI models exposes the economy to potentially significant output losses from external disruptions, reinforcing the case for building domestic technological resilience and innovation capacity.

Keywords: term premium; gilt yield; yield change; labor taxation in the UK; reform scenario; Marginal effective tax rate; Labor supply; Wages; Labor taxes; Global; Middle East (search for similar items in EconPapers)
Pages: 93
Date: 2026-07-16
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