Economists agree that the UK’s long-term sickness is low productivity—we simply don’t produce enough value per hour worked. The Bank of England’s rate cut to 3.75% is a shot of adrenaline to keep the patient moving, but it doesn’t cure the disease.
Low productivity is caused by lack of investment in skills, machinery, and infrastructure. High interest rates made this worse by freezing investment. The cut helps unfreeze it, but the “lag effect” means we won’t see results for years.
The dissenters on the MPC worry that we are using rate cuts to mask this structural weakness. If we keep pumping cheap money into an unproductive economy, we just get inflation (too much money chasing too few goods). This is the “supply side” argument for keeping rates higher.
The Chancellor’s focus on “rekindling economic growth” relies on productivity improving. But with businesses blaming the National Insurance hike for slowing them down, the incentives are mixed.
In 2026, we might see growth return, but if it’s just “consumption growth” (people spending) rather than “productive growth” (companies making more), it will be short-lived. The rate cut buys time, but it doesn’t build factories.
