Britain's sluggish growth isn't inevitable — it can be put right with more domestic investment and better economic forecasting, former Bank of England chief economist Andy Haldane told The Rest Is Money podcast. Interest rates are 5.25%, the highest in 16 years, and Haldane said those two priorities should shape the immediate policy debate while rates remain elevated.

Haldane's diagnosis Andy Haldane, the former Bank of England chief economist, told podcast host Robert that the UK’s growth problem is solvable. He emphasised two themes: a shortfall in domestic investment, and weaknesses in how economists foresee major shocks. He framed these gaps as the right focus for public debate rather than evidence of intractable decline. Why domestic investment matters Haldane argued that higher domestic investment — in factories, R&D, infrastructure and skills — is central to lifting medium-term productivity and living standards. Investment decisions respond to public policy and private incentives: fiscal settings, tax treatment, planning rules and project pipelines all matter, as do expected returns relative to the cost of capital amid a historically high Bank Rate. Economists, forecasting and crises He also questioned whether the economics profession should be better at anticipating major downturns and policy shocks. Better forecasting and earlier warnings, Haldane said, could allow governments and businesses to build buffers and act more gradually, reducing the need for abrupt interest-rate shifts or emergency interventions that disrupt households and firms. Policy levers and the rate backdrop The interview took place with the official bank rate at 5.25%. That backdrop matters for the choices Haldane discussed: higher rates raise borrowing costs and change investors’ return calculations while helping curb inflation. If the private sector is expected to raise investment while financing costs remain elevated, public policy must either change incentives or directly supply capital. Possible responses Haldane mentioned include a stronger role for public investment, targeted tax measures and regulatory reform to improve project pipelines and the expected returns on private capital. Who would feel the change? Haldane said an investment-led lift in growth would be widely felt: businesses, households and savers would see effects through employment, returns and borrowing costs. He argued that both policy action and private capital mobilisation are needed to change the economy’s trajectory.

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With the Bank Rate at 5.25%, Haldane said boosting domestic investment and improving forecasting should be the twin priorities guiding UK policy while rates remain high.

This article was created with AI assistance.