AIB Working Group — UK Labour Market
Three scenarios.
One direction of travel.
This model tracks the cascading implications of AI adoption on the UK labour market against three scenario projections, grounded in research from the IMF, WEF, PwC and McKinsey. Updated quarterly against ONS and GfK data. Q1 and Q2 2026 confirmed via the August ONS release. Q3 2026 data due September 2026.
The three scenarios
AI augments rather than replaces. Displacement is real but matched by new job creation accessible to displaced workers. The UK follows the WEF's optimistic global trajectory. Productivity gains lift wages and consumer demand holds up.
Displacement runs well ahead of retraining. The UK's low workforce readiness constrains new job creation. A 7–8 year rotation plays out: mass displacement first, slow recovery second. The professional middle is squeezed for a decade. SME failure rates run 15–20% above trend.
Scenario 2 trajectory, but the rotation never completes. New roles require advanced degrees and AI skills that displaced workers cannot access. A permanent K-shaped labour market opens. Youth NEET above 25%. Wave 2 robotics (2030–34) compounds the structural damage. Great Depression-level unemployment is possible.
Q1 and Q2 2026 actual data confirmed via August ONS and August GfK releases. Consumer confidence plotted monthly (Jan, Jun, Jul, Aug 2026). Q3 2026 data due September 2026. Scenario projections are annual benchmarks interpolated to quarterly. Model decision point: Q4 2026.
Observable signals — Q2 2026 confirmed / Q3 2026 early
Real total pay (including bonuses, CPIH) confirmed at +1.1% in Q2 2026, holding better than the model projected at this stage. Public sector pay is running at 6.1% due to timing of awards, skewing the headline. Private sector nominal wage growth is 2.8%, materially lower. Watch whether energy cost pass-through from the Iran conflict turns the Q3 figure negative before the September ONS release.
Youth unemployment 16.4% (Mar-May 2026) — an 11-year high per Work Foundation analysis of the ONS data. Scenario 3 risk threshold is 19%+. Watch Q4 2026 ONS release. Anthropic's Economic Index finds no aggregate unemployment rise yet in AI-exposed occupations, but evidence that hiring of younger workers has slowed in those fields.
Vacancies fell to 707K in May-Jul 2026 — outside the pandemic period the lowest since September to November 2014. ONS Vacancy Survey feedback explicitly flags that small firms are not recruiting because of increases in labour costs and other operating expenses. A direct confirmation of early-stage displacement dynamics. No reversal signal yet.
Consumer confidence has recovered sharply: July up six points to -17, August up three points to -14, its highest level in two years and nine points above the April low of -25. GfK attributes this to improved personal finance expectations and the political mood shift under Burnham. Structural labour market signals have not moved to match. Treat as a sentiment bounce rather than an economic recovery until Q3 ONS data confirms.
IMF's July WEO update raised the UK's 2026 growth forecast to 1.0%, from 0.8% in April — the only G7 economy upgraded this round. Encouraging, but ONS and GfK data through August do not yet show a matching improvement in the structural labour market picture. Watch whether the gap closes or the labour data proves the more reliable signal.
Burnham has moved quickly on AI governance: DSIT dissolved, Kanishka Narayan appointed as the UK's first cabinet-level AI minister, and new technical education pathways for 14-19 year-olds announced, rolling out from September 2028. Reskilling is one of five stated policy pillars. The delivery problem is structural: DSIT's abolition has dispersed the institutions that would implement any of this, and the transition obligation has defaulted to employers in the interim. The 2028 rollout means Scenario 1's requirement of sustained reskilling investment starting now is not met. Intent is present. Machinery is not. Watch the autumn spending review for funding commitment.