Market Update: Trends in UK business dynamism and productivity – Full Analysis

Estimates for firm-level labour productivity and market power are derived from the Annual Business Survey (ABS). The ABS combines data from the Annual Business Inquiry (1997 to 2008), the Annual Business Survey (2008 to 2023) and the Northern Ireland Annual Business Inquiry (1997 to 2023). This represents the largest Office for National Statistics (ONS) business survey in terms of the number of respondents and variables it covers. The ABS covers the non-financial business sector only, which excludes businesses from the following industries:

• farms in section A (agriculture)

• all of section K (finance and insurance)

• section O (public administration and defence)

• the government components of section P (education) and Q (health)

Business dynamism results are derived from the Longitudinal Business Database (LBD), which is a linking infrastructure constructed using the Inter-departmental Business Register (IDBR). The LBD provides longitudinal business microdata at a quarterly frequency. The business dynamism results presented in this bulletin are based on the annual LBD. The annual LBD is derived from the quarterly LBD by selecting Quarter 3 (July to Sept) IDBR data for most years, apart from 2002, which uses Quarter 4 (Oct to Dec). This is done to capture the annual updates in firm employment.

Firm age is a strict measure of the time in which the business is substantively active to an extent to qualify for inclusion as an active enterprise on the IDBR. If a firm becomes inactive for more than a year and then reactivates, the age counter is reset to zero. Firms that reactivate after a year may have two different age measures at two different points in time. In 1999, the first year of the LBD, the age of firms with existing birthdates are calculated as the difference between their birthdates and 1999. For enterprises without birthdates, the age counter starts at zero.

More information about the ABS can be found in our ABS Quality and Methodology Information (QMI).

Further information about the LBD can be found in the Economic Statistics Centre of Excellence’s The UK Longitudinal Business Database technical report.

The measures presented in this bulletin have previously been published as analytical articles. These articles provide more detail on the background and methodology for these measures. See Section 8: Related links.

Strengths and limitations

Firm-level labour productivity

Estimates are weighted to be representative of workers in the non-financial business sector. First, the sample is weighted to be representative of the whole population of UK businesses, using survey design weights based on the IDBR. Then each business is additionally weighted by its workforce size, for example, a factory with 1,000 workers has 200 times more weight than a small workshop with five workers. However, note that an employment-weighted distribution of firm-level outcomes is not necessarily the same as the average outcome across all employees in the population, because of the within-firm dispersion in the outcome variable.

Results are also presented on a constant price basis, with a base year of 2023. Following the implementation of double deflation we use implicit price deflators calculated from the gross domestic product (GDP) output accounts, as described in our Double deflation and supply and use framework in the UK National Accounts article. The price deflators were calculated at the lowest level of industry aggregation used in the national accounts, which is mostly the two-digit Standard Industrial Classification (SIC) level.

Business dynamism

The annual LBD, derived from the quarterly LBD, uses two consecutive annual snapshots to establish true longitudinality. Like the quarterly LBD, the annual version uses unit-specific filters to build a clearer picture of the active business population for all units of the business structure.

The UK Business Register and Employment Survey (BRES) is the primary source of employment in the IDBR. Though BRES captures the annual employment dynamics, its use introduces a one-year lag, as the updated employment is reflected in the following year in the IDBR. The BRES also does not survey all firms every year. For firms that are not surveyed on an annual basis, the employment is not updated every year.

Since the present version of the LBD only takes the IDBR as its input, very small businesses that are not VAT registered or have no employees are not included. Businesses are not required to register if their annual turnover falls below the VAT threshold, which was £90,000 in 2024. Because of this, many self-employed workers are excluded. Nonetheless, businesses on the IDBR represent roughly 98% of turnover and 88% of employment. For information, see the Department for Business and Trade’s Business population estimates for the UK and regions 2025: statistical release.

Correction between the 2024 and 2025 publications

A change in methodology was applied to fix an issue related to enterprise active status, where in some cases adding new yearly data retroactively altered a firm’s active status. The impact affected employment figures from 2006 onwards, resulting in an average drop of 0.0001% in employment. This edition resolves the problem but, as a result, introduces differences compared to the previous edition. Between 2001 and 2023, the annual firm count increased by an average of 0.063%, and annual employment rose by 0.02%.

Market power

Capital stocks are not available at the firm level. They are constructed through the Perpetual Inventory Method (PIM) based on deflated capital expenditure values in the Annual Business Survey (ABS), and starting capital stocks from the national accounts, apportioned to the firm based on employment. Missing investment values are imputed based on a firm’s own average investment, and where this is not possible, based on that of similar firms.

To compare quantities across years in real terms, we apply GDP-implicit price deflators. These deflators are calculated at the lowest level of industry aggregation in the national accounts. Typically, this is the two-digit SIC level. As a result, estimates in this article are given in constant price terms, with 2023 as the base year.

We apply the frequency weights that are computed as part of the construction of the ABS and ABI. This ensures that the sample is representative of the business population at large. Additionally, we weight firm-level markups by employment.

Official statistics in development

These statistics are labelled as “official statistics in development”. Until September 2023, these were called “experimental statistics”. Read more about the change in the guide to official statistics in development.

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