The UK becomes the country hardest hit by AI employment

# Source: Wall Street Insights

By Zhao Ying

Research has found that UK companies have cut or abandoned filling approximately a quarter of their positions due to AI, a proportion similar to that of their counterparts in other countries. However, UK firms are significantly less likely to expand recruitment because of the technology, even as many businesses have started to see returns on their tech investments. Official data shows that UK companies are laying off staff at the fastest pace since 2020, with the unemployment rate climbing to a nearly five-year high.

According to the latest research from Morgan Stanley, the UK is emerging as the developed country hardest hit by AI's impact on the job market. The net layoff rate attributable to AI over the past 12 months has reached 8%, far exceeding that of international peers.

Morgan Stanley's research covered enterprises in countries including the US, Germany, Japan and Australia. The UK's AI-driven net layoff rate is twice the international average. While UK companies have achieved an average productivity boost of 11.5% through AI—nearly on par with US firms—American enterprises have actually created more jobs while adopting AI.

This trend comes at a time when UK employers are grappling with rising wage costs, sluggish economic growth and mounting political instability. Official figures indicate that UK businesses are shedding jobs at the quickest rate since 2020, pushing the unemployment rate to a five-year peak. Sharp increases in the minimum wage and higher National Insurance contributions continue to weigh on corporate staffing plans.

Andrew Bailey, Governor of the Bank of England, warned last month that the UK needs to prepare for AI-driven job displacement, noting that the technology could erode the talent pipeline that helps employees advance to more senior roles.

## AI-Driven Layoff Rate Leads Among Developed Nations

Morgan Stanley's study surveyed companies in five AI-impacted sectors—consumer goods and retail, real estate, transportation, medical devices and automotive—that have been using the technology for at least one year. Data shows that the UK's 8% AI-related net layoff rate is the highest among all the countries surveyed.

The research found that UK companies have reduced or foregone filling around a quarter of their roles due to AI, a share comparable to businesses in other nations. Nevertheless, UK enterprises are notably less inclined to ramp up hiring thanks to the technology. For many firms, tech investments have started to pay off, with nearly half of UK companies reporting more substantial productivity gains.

Justin Moy, Managing Director of EHF Mortgages based in Chelmsford, northeast London, commented: "Rising costs of employing staff are prompting more and more small businesses to adopt AI and outsourcing solutions to fulfill roles traditionally held by local employees, who are now losing these opportunities."

## White-Collar Workers and Young People Bear the Brunt

An analysis of online job vacancy data from the UK Office for National Statistics by Bloomberg shows that while job postings have declined across industries, UK companies are cutting positions most vulnerable to AI disruption—such as software developers or consultants—at a faster pace. Since OpenAI launched ChatGPT in 2022, vacancies for such roles have dropped by 37%, compared with a 26% fall for other positions.

Official data released last week revealed that overall job vacancies across the economy have plummeted by more than a third since 2022, equivalent to 500,000 roles. A fifth of this decline has been driven by sectors most susceptible to AI impact, including professional, scientific and technical activities, administrative services and the IT industry.

Britain's youngest workers are facing a double squeeze. AI is disrupting entry-level white-collar jobs, while Labour's tax policies are putting pressure on recruitment in the retail and hospitality sectors. Youth unemployment rose to 13.7% in the three months to November, the highest level since 2020, increasing at a faster rate than the overall unemployment rate.

Employers surveyed by Morgan Stanley stated that they are most likely to cut early-career roles requiring two to five years of experience in the UK.

## Productivity Gains Fail to Offset Employment Pains

AI has the potential to pull the UK economy out of its slow-growth trajectory. Both the Bank of England and the Office for Budget Responsibility have highlighted this possibility, with the fiscal watchdog estimating that the technology could lift productivity growth by up to 0.8 percentage points over the next decade—a boost that would improve living standards and public finances.

For now, however, the focus is on how AI is exacerbating the UK's employment crisis, particularly its impact on young people and white-collar workers. Bailey noted that AI is emerging as the next "general-purpose technology", akin to past waves of innovation that drove growth, such as computers and the internet.

Rachel Fletcher, Head of EMEA Sustainable Research at Morgan Stanley in London and one of the report's authors, said the findings provide an "early warning signal" of how AI is disrupting labor markets. She added that the technology's impact on jobs "has featured in many of our recent conversations with investors".

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