This week’s briefing again takes a particular focus on the UK economy, with a glance at the fast-moving world of crypto.
EY points to a key reason the UK economy has struggled in recent years - and why this could be the moment for change and growth. We’ll also unpack today’s GDP figures and the latest employment data, which together give a clear read on where the economy stands.
Additionally, an update to the crypto market, where there has been volatility in markets leading up to a new all-time high.
Read on for crucial insights that will shape our economic landscape moving forward.
A new EY report, Mind the Productivity Gap, has highlighted the economic cost of weak public sector productivity growth since the pandemic. If output had kept pace with the private sector since 2019, UK GDP would be 3% higher by the end of 2024, worth roughly £84 billion to the economy.
Instead, slower growth means the UK is currently losing around £80 billion a year in potential output, with the gap on track to reach £170 billion annually by 2030 if nothing changes.
Between 2010 and 2019, public and private sector productivity grew at similar rates. That trend broke after Covid-19, with private sector productivity now 3% higher than pre-pandemic levels while public sector productivity is still nearly 5% lower. Inputs into public services, from staffing and wages to maintenance, have risen almost 25% since early 2019, but output has only increased by 14%, producing an 8.3% productivity fall.
By comparison, the private sector has managed to grow productivity by 4.7% in the same period. Closing this gap, EY suggests, could deliver a 15% increase in public sector output and a material boost to UK GDP. The report points to modernising real estate and infrastructure, integrating digital and automation technologies, and sharing best practices across departments as the most promising interventions.
The challenge isn’t purely about technology; it’s also structural. Ageing public sector estates bring high maintenance costs, while siloed departments limit the spread of efficiency gains. The report emphasises that some public services have seen productivity growth, proving that improvement is possible if knowledge and tools are shared effectively.
While there are no quick fixes, EY sees a five-year window to make decisive progress. Chris Neill, EY UK Partner, summed it up: “Realigning public sector productivity with the private sector over the next five years would present an enormous economic opportunity for the UK.”
The UK labour market has continued to cool, with job vacancies falling 5.8% between May and July to 718,000, the lowest since April 2021. This drop spans nearly all industries, led by hospitality and retail, and marks the 10th decline in payroll numbers in the last 12 months.
The Office for National Statistics (ONS) says some firms are slowing hiring or not replacing staff who leave. Despite the weakness, the fall was not as severe as economists had expected.
Several factors have added cost pressure on employers. In April, the National Living Wage jumped from £11.44 to £12.21, while employer National Insurance contributions increased from 13.5% to 15% and the threshold for payment dropped to £5,000. For many businesses, particularly in the hospitality sector, these changes have reduced margins, forcing a tighter focus on efficiency without increasing employment.
Some analysts have said the cooling jobs market may help ease wage growth and inflation pressures, influencing the Bank of England’s interest rate decisions.
The government maintains that recent employment and wage data show the economy is stabilising, though opposition parties blame higher taxes and regulatory burdens for the slowdown. As former Bank of England policymaker Andrew Sentence put it, the numbers suggest a “very gradual cooling” rather than a crisis in the labour market.
However, on the flip side, some have pointed to unusual revisions in figures potentially masking the depth of current labour market issues.
Bitcoin has just surged to a new all-time high above $124,000 (£91,000) before easing to around $121,700, capping a week-long rally that’s lifted the total cryptocurrency market cap to $4.23 trillion.
This move puts Bitcoin more than 6% higher on the week, surpassing its July peak of $120,000. Ethereum has outperformed in percentage terms, soaring 28% over seven days to $4,742, just shy of its November 2021 record of $4,865.
Market analysts say the rally reflects growing integration between digital assets and traditional finance, accelerated by institutional participation through ETFs and renewed retail activity on more advanced decentralised platforms. Softer US inflation data has also boosted expectations for interest rate cuts, fuelling investor appetite for risk assets, including crypto.
In the US, a friendlier regulatory stance has been added, fueling the rally. President Trump recently signed an executive order removing “reputational risk” as a supervisory factor for banks, making it easier for them to work with crypto firms. This was accompanied by the disbanding of the Justice Department’s National Crypto Enforcement Team and new legislation to create a federal framework for stablecoins.
Industry leaders argue that the shift is clearing the way for greater institutional adoption. As VOOI CEO Will K put it: “Bitcoin’s latest rally reflects the blurring lines between crypto and traditional assets, happening faster than institutional adoption timelines predicted.”
UK GDP growth slowed to 0.3% in the second quarter, down from 0.7% in Q1, as the economy came under pressure from tariff uncertainty and tax increases. Despite the deceleration, the figure beat the 0.1% expected by economists, helped by a stronger-than-anticipated rebound in June.
The ONS reported that June GDP grew 0.4%, offsetting contractions in April and May. The month saw notable gains in scientific R&D, engineering, car sales, and electronics manufacturing. Services led overall quarterly growth, with particular strength in computer programming, health, and vehicle leasing.
ONS officials noted that some activity had been brought forward to February and March ahead of changes to stamp duty and tariffs, leaving April and May weaker. Still, the June bounce suggests underlying resilience, with production and manufacturing sectors showing signs of momentum.
Chancellor Rachel Reeves welcomed the figures, calling them “positive” and evidence of a strong start to the year, but stressed that more needs to be done to deliver “an economy that works for working people.”
This week’s update highlights a potential key reason, among others, for the UK’s suboptimal economic performance and sluggish growth in recent years: a lagging public sector. With EY taking a deep dive into the data, it’s clear that a sharper focus and investment in this area of the economy could help plug the chancellor’s recently updated £51 billion fiscal gap.
Looking at the present, labour market data continues the trend seen over recent months, with job opportunities declining. One positive from this month’s figures is that unemployment has remained fairly steady, suggesting fewer job losses. That said, there’s little to indicate the labour market is set for a turnaround any time soon.
Turning briefly to this week’s crypto story, the ever-volatile Bitcoin has once again made a sharp move to the upside after weeks of choppy trading, hitting yet another all-time high. This further reinforces the growing presence of crypto assets within investment portfolios.
Adding to the recent run of data we’ve covered—interest rates, GDP, and employment—next week we’ll be looking at the latest CPI data, due for release on 20 August. For those who want an early look, the figures will be published here (the ONS website) at 7:00 AM BST, before our full analysis.