Britain is preparing for the possibility of severe AI-driven job losses, with the government drawing up contingency plans as companies automate parts of their workforces. AI minister Kanishka Narayan said the preparations were a priority, raising the prospect of a significant policy response to disruption across the labour market.

The warning is one of the most consequential UK business stories reported on Tuesday, as it places employment risks from artificial intelligence at the centre of economic planning. It also comes as signs of weaker private-sector momentum and rising cost pressures complicate the outlook for businesses and policymakers.

Government prepares for labour-market disruption

Narayan said the government was developing a contingency plan for what he described as “unprecedented” AI-driven job losses. The plan could include changes to labour-market policy, although the government has not set out specific measures or published estimates for the number of jobs at risk.

The focus on contingency planning suggests ministers are considering scenarios in which automation spreads rapidly across several industries rather than affecting only a small number of specialist roles. Businesses are increasingly using AI to automate tasks and reduce staffing requirements, particularly in administrative and knowledge-based work.

The government’s approach reflects the difficulty of forecasting the effect of AI. The technology may eliminate some roles, but it can also create new work, raise productivity and change the tasks performed within existing jobs. The scale and speed of the transition will depend on investment, regulation, consumer demand and how quickly companies integrate the technology.

Economic backdrop adds pressure

The warning comes against a subdued economic backdrop. A closely watched composite purchasing managers’ index fell to 51.7 in September from 52.5 in August, pointing to continued private-sector expansion but at a slower pace. The reading was below economists’ expectations, while services activity reached a three-month low and manufacturing output a six-month low.

S&P Global said the latest business survey was consistent with quarterly economic growth of about 0.1%, well below the 0.4% expansion recorded in the second quarter. At the same time, companies reported intensifying cost pressures and weak hiring, adding to concerns about the resilience of the labour market.

Higher borrowing costs are also constraining investment decisions and narrowing the government’s fiscal room ahead of its next budget. Any sharp rise in unemployment linked to automation would increase pressure on public finances through higher benefit spending and lower tax receipts.

Businesses face a difficult transition

For companies, AI adoption offers the potential to cut costs and improve output at a time when growth remains fragile. But rapid reductions in headcount could weaken household incomes and demand, creating a broader economic challenge if productivity gains are not matched by new employment opportunities.

The policy debate is therefore likely to extend beyond investment incentives and regulation. Ministers may also face calls to expand retraining, reform employment support and ensure that workers displaced by automation can move into growing sectors.

No timetable has been given for the contingency plan, and the government has not said whether it expects widespread job losses to occur imminently. Its decision to prepare for that possibility nevertheless signals that AI-related employment disruption is being treated as a material economic risk rather than a distant technological concern.