UK Growth: Stuck in the Slow Lane – Notes from our Revision Livestream

As we move into 2025, the UK economy continues to grapple with sluggish economic growth, high inflationary pressures, and policy challenges that could shape the country’s financial landscape for years to come. The latest tutor2u Economics livestream explored these pressing issues, analysing the root causes of slow growth and the best strategies for improving the UK's economic outlook. There were many superb contributions from the many students engaged with the livestream on the night. You can download the presentation at the end of this blog.

Why is UK Economic Growth So Slow?

Over the past 15 years (2010-2024), the UK's real GDP has grown by just 1.5% per year—half the rate seen in previous decades. This prolonged period of stagnation has left many questioning the underlying causes. The livestream identified both short-term (cyclical) and long-term (structural) factors that continue to weigh on the economy:

Short-Term (Cyclical) Causes:

1. The Cost-of-Living Crisis & Fiscal Drag – Rising living costs and higher tax burdens have squeezed real disposable incomes, limiting consumer spending.
2. Cautious Monetary Policy – The Bank of England's delayed rate cuts have kept borrowing costs high, slowing down business and household investment.

Long-Term (Structural) Causes:

1. Weak Productivity Growth & Underinvestment – The UK has lagged behind its global peers in capital investment, contributing to low productivity and stagnant wages.
2. Labour Market Challenges – Skills shortages and rising economic inactivity (20% of the working-age population) have reduced workforce participation.

The Consequences of Slow Growth

The UK’s economic stagnation has far-reaching consequences, including:

• Lower tax revenues, making it harder to fund public services and manage national debt.
• Higher relative poverty, with more families struggling to afford basic necessities like housing, energy, and digital access.
• Rising unemployment risks, particularly among young people and workers in low-productivity sectors.

How Can the UK Boost Growth?

The session explored a range of supply-side policies to address these challenges, focusing on education, investment, and infrastructure. Some of the key recommendations included:

🔹 Expanding T-Levels, apprenticeships, and technical colleges to address skills shortages.🔹 Tax incentives for AI and robotics to improve productivity and reduce reliance on scarce labor.🔹 Regional investment in innovation hubs and transport links, such as fast East-West rail improvements.🔹 Zoning reforms to encourage housing development, making homes more affordable and accessible.

Labour’s Growth Plans: A New Economic Approach?

With the UK government under increasing pressure to deliver economic growth, the livestream also examined Labour’s proposed policies, which emphasize infrastructure investment, AI development, and housing reforms. Key initiatives include:

• Backing major infrastructure projects like the Heathrow third runway and new reservoirs.
• Unlocking corporate pension wealth to fund long-term investment.
• Encouraging AI-driven economic transformation with support for commercializing research.

What’s Next for the UK Economy?

The outlook for 2025 remains uncertain. Business confidence has taken a hit, and concerns over a potential recessionpersist. Policymakers will need to strike a careful balance between stabilizing inflation, boosting investment, and supporting households through difficult times.

For students and teachers looking to dive deeper into these topics, the full PowerPoint slides from the tutor2u livestream are available as a FREE download—a valuable resource for A-level Economics revision and teaching.

Glossary of Key Economic Terms

A

• Aggregate Demand – The total demand for goods and services within an economy at a given overall price level and in a given period.
• AI (Artificial Intelligence) – The use of computer systems to perform tasks that typically require human intelligence, such as problem-solving and decision-making.

B

• Base Rate – The interest rate set by the Bank of England, influencing borrowing and lending rates in the economy.
• Brexit – The UK’s withdrawal from the European Union, impacting trade, labor mobility, and investment.

C

• Capital Investment – Spending by businesses and governments on physical assets like factories, infrastructure, and technology to enhance productivity.
• Cyclical Unemployment – Unemployment caused by economic downturns or recessions, when demand for goods and services falls.

D

• Disinflation – A slowdown in the rate of inflation (prices are still rising but at a slower pace).
• Disposable Income – The amount of money households have available to spend or save after taxes and essential expenses.

F

• Fiscal Drag – The process where inflation and income growth push individuals into higher tax brackets, increasing their tax burden without a change in tax rates.
• Fiscal Policy – Government policies related to taxation and public spending aimed at influencing economic activity.

G

• GDP (Gross Domestic Product) – The total value of goods and services produced in a country over a specific period, used to measure economic performance.
• Growth Rate – The percentage change in real GDP over a period, indicating how fast an economy is expanding.

I

• Inflation – The rate at which the general level of prices for goods and services rises, eroding purchasing power.
• Infrastructure Gap – The shortfall in essential public and private investment in transport, energy, housing, and digital infrastructure.
• Interest Rates – The cost of borrowing or the return on savings, set by the central bank to influence economic activity.

L

• Labour Market – The supply and demand for workers, influencing employment, wages, and economic productivity.
• Living Wage – The minimum hourly wage required to afford basic living costs, often higher than the legal minimum wage.

M

• Macroeconomics – The branch of economics that studies large-scale economic factors such as GDP, inflation, and unemployment.
• Multiplier Effect – The idea that an initial change in spending (such as government investment) leads to a greater overall economic impact.

N

• National Debt – The total amount of money a government owes to creditors, often expressed as a percentage of GDP.
• NIESR (National Institute of Economic and Social Research) – A leading UK economic think tank providing independent economic analysis.

P

• Productivity – The efficiency of production, usually measured as output per worker or per hour worked.
• Public Services – Services provided by the government, such as healthcare, education, and transport.

R

• Recession – A period of economic decline marked by falling GDP for two consecutive quarters.
• Real GDP – GDP adjusted for inflation, providing a more accurate measure of economic growth.

S

• Skills Shortages – A situation where employers struggle to find workers with the necessary skills, limiting business growth.
• Supply-Side Policies – Economic policies aimed at increasing productivity and efficiency, such as education investment and tax incentives.

T

• T-Levels – Technical-based qualifications in the UK designed to provide students with practical skills for employment.
• Tax Incentives – Government measures that reduce tax liabilities to encourage investment or spending.

U

• Unemployment Rate – The percentage of the workforce that is jobless and actively seeking employment.

Z

• Zoning Reform – Changes to land-use regulations to encourage housing development and infrastructure growth.