Business investment is stagnating. Coalition policies look set to exacerbate the problem and will do little to help the economy meet OBR's ambitious estimates.
New data out today for January, February, and March suggests that business investment is stagnating at around £27 to £30 billion – nearly a quarter below their peak level. Coalition policies look set to exacerbate the problem.
As the graph shows, business investment has failed to rebound to anywhere near the peak levels of 2007 and instead is stuck below £30 billion. It is still down 7.7 per cent on this time last year and down 22.4 per cent on its peak level – although it went up slightly on its trough last month.
Total manufacturing investment, meanwhile, continues to fall and is down a further 0.2 per cent on the last quarter of 2009 at £2.4 billion. It is now down 37.6 per cent on its peak. Most of the rise in business investment is due to growth in service sector investment.
It will certainly be interesting to see the Q3 data later in the year when we will get some indication of how the Coalition’s policies start to affect the numbers. The Government has recently cut industrial support including the loan to Sheffield Forgemasters; announced the end of Regional Development Agencies; and cut investment allowances which was described by the Institute for Fiscal Studies as likely to favour “supermarkets over manufacturers“.
It is hard to square those policies with the Office of Budget Responsibility’s prediction (Table C2, p.84) that business investment will jump from 1.4 per cent in 2010 to 8.1 per cent in 2011, 10.0 per cent in 2012, and 10.3 per cent in 2013. In total, the OBR is predicting a 56.2 per cent rise in business investment by 2015.
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23 Responses to “Business investment continues to stagnate”
Mark Stevo
By the way, what is a reasonable expectation for next year? What sort of growth would you say would indicate a failure of Tory investment policies?
Felicity
Hi Mark,
After the recession in the early 90s business investment didn’t reach pre-recession levels until 1996, so if business investment remains depressed it wouldn’t be surprising. However, the Tories want economic rebalancing, which would require (I assume) a boost in investment, so I think you’d want to see it rising pretty rapidly to support that objective – which presumably means supporting things like the Forgemasters loan…
mike
next time we have a businessman or CBI spokesperson on the Tv or radio saying we should have major cuts and “rebalancing the economy” we should ask them how many jobs they plan to create in the next two years
mike
mich is made of pay cuts in the private sector
can anyone tell me of a Chief exec in the top 100 companies, who has taken a pay cut on their basic pay ???
Can anyone expalin when the economy is doing so badly why bankers have awarded themselves record bonuses ???
Mark Stevo
I’m not sure the timeline to get to the pre-recession levels of spend (on a real basis) forecast by the OBR is radically different from that Felicity (4-5 years). As for Forgemaster, I don’t know the details, but it is not beyond the bounds of possibility that this loan was not made with entirely economic reasons in mind.