AI job cuts are landing hardest in UK, Morgan Stanley says

LONDON - The UK is losing more jobs than it is creating because of artificial intelligence (AI) – and at a faster rate than its international peers.

That is according to research by Morgan Stanley that found the significant benefits to firms adopting the technology are coming at a particularly heavy cost to workers in Britain, weighing on an already cooling labour market.

British companies reported that AI led to 8 per cent net job losses over the past 12 months, the study shared with Bloomberg shows. It was the highest level in a group that included German, American, Japanese and Australian firms, and twice the international average. 

The report surveyed firms that have been using AI for at least a year, in five industries exposed to the technology – consumer staples and retail, real estate, transport, healthcare equipment and cars. For many of them, tech investments are already paying off. 

UK companies saw an average 11.5 per cent productivity increase thanks to AI, with almost half reporting even greater boosts. But their US counterparts, which reported virtually the same productivity gains, created more jobs than they slashed due to AI.

In the UK, the AI revolution comes just as employers are struggling with payroll costs, slow growth and greater political instability. Firms are cutting jobs at the fastest pace since 2020 and unemployment is at a near five-year high, according to the latest official statistics, as large minimum-wage rises and an increase in national insurance contributions continue to impact staffing plans.

While job postings are declining across the board, UK firms are scaling back occupations that are likely to be affected by AI, like software developers or consultants, at a faster pace, according to a Bloomberg analysis of online vacancies figures from the Office for National Statistics. Since 2022 when OpenAI’s ChatGPT was launched, vacancies for such jobs have dropped 37 per cent, compared with a 26 per cent decline elsewhere.

“The rising costs of employing staff is driving a growing number of smaller businesses to use AI and outsourcing solutions to fulfil roles traditionally filled by local people who are now missing out on these opportunities,” said Mr Justin Moy, managing director at EHF Mortgages in Chelmsford, north-east of London.

The Morgan Stanley report showed that AI led employers in the UK to cut or refrain from backfilling around a fourth of their roles, similar to peers in other countries. Yet UK firms were significantly less likely to step up hiring as a result of the technology. 

AI has the potential to rescue Britain’s economy from its sluggish growth path. The possibilities have been highlighted by the Bank of England (BOE) and the Office for Budget Responsibility, with the fiscal watchdog estimating the technology could lift productivity growth by as much as 0.8 percentage points within the next decade – a boost that would improve living standards and the public finances. 

For now, however, the focus is on how AI is worsening the UK’s jobs crisis, particularly for young people and white-collar workers.

Official figures published last week showed vacancies across the economy have fallen by more than a third since 2022 – the equivalent of half a million roles. A fifth of that decline was driven by some of the sectors most likely to be impacted by AI, such as professional, scientific and technical activities, administrative services, and information technology.

The UK’s youngest workers are being squeezed from both sides, as AI disrupts entry-level white-collar roles while Labour’s tax policies weigh on hiring in retail and hospitality. Youth unemployment has risen faster than the overall rate, reaching 13.7 per cent in the three months through November, the highest since 2020.

BOE governor Andrew Bailey says AI is emerging as the next “general purpose technology” akin to growth-driving waves of innovation in the past, such as computers and the internet. However, he warned in December that the UK needs to be ready for AI-driven job displacements. He also cautioned that the technology could impact the talent pipeline that helps workers move up into more senior roles.

Employers surveyed by Morgan Stanley for the report said they were most likely to cut early-career jobs requiring two to five years of experience in the UK. BLOOMBERG