UK Economy: What are neutral interest rates?

This article quotes the Governor of the Bank of England who is of the view that whilst interest rates are going to fall, they're not going to fall back to close to zero, where they were.

He introduces the concept of the "neutral interest rates" which the defines as "the level at which monetary policy is set for stable prices and is neither stimulating nor restricting economic growth". The consensus seems to be that this is around 3%, and the bank is going to get there via a series of incremental interest rate cuts over the next few months.

In economics, the "neutral interest rate" refers to the theoretical level of the real (inflation-adjusted) short-term interest rate that neither stimulates nor restricts economic growth.

At this rate, the economy is considered to be in equilibrium, with stable inflation, full employment, and output at its potential level.

The neutral interest rate is also known as the natural rate of interest or the equilibrium real interest rate. It represents a benchmark for central banks when determining monetary policy and setting their policy rates, such as the federal funds rate in the United States or the bank rate in the United Kingdom.

When the actual real interest rate is below the neutral rate, it indicates that monetary policy is stimulative or expansionary, supporting economic growth and potentially putting upward pressure on inflation

Conversely, when the actual real interest rate is above the neutral rate, it implies that monetary policy is restrictive or contractionary, slowing down economic growth and potentially leading to lower inflation.

Estimating the neutral interest rate is challenging, as it depends on various structural factors within an economy, such as long-term productivity growth, demographic trends, and the savings and investment balance. As a result, the neutral interest rate can change over time and may differ across countries.