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”
Michael Burke
This is a key point. Investment is the determinant of future prosperity. Gross fixed capital formation fell by £45.5bn in the recession, 54% of the entire fall in GDP of £84bn, the decline in business investment being £42bn (all data annualised).
But we have seen from today’s Guardian that job cuts in the public sector will directly lead to job cuts in the public sector, where there is already spare capacity. On the OBR’s own forecasts household consumption will be subdued for the entire period, rising by just 10% to 2015. So why the extravagant forecasts for growth in business investment?
Exports maybe? But the spare capacity applies the export-oriented sector too, so an export-led investment surge seems outlandish, especially while firms are losing tax reliefs on capital investment.
Sharon Jones
Business investment continues to stagnate | Left Foot Forward: Business investment is stagnating. Coalition polici… http://bit.ly/cCrab2
Gabi Urse
Business investment continues to stagnate | Left Foot Forward http://bit.ly/b7w3YP
Al Cooper
Business investment continues to stagnate | Left Foot Forward http://bit.ly/aIbnRU
Lily Ma
Business investment continues to stagnate | Left Foot Forward: Business investment is stagnating. Coalition polici… http://bit.ly/cCrab2