Business investment forecasted to fall despite record economic growth

The BCC’s latest economic forecast reveals business investment is estimated to remain 5.4 per cent lower than its pre-pandemic level by the end of the forecast period in Q4 2023. In contrast, consumer spending is projected to be 5.1 per cent higher than its pre-pandemic level over the same period.  

Damage done to firms’ finances by the pandemic, a more onerous tax regime and concerns over the potential for future COVID restrictions will hamper business investment, the report says.

Meanwhile, the economic recovery will be driven by historically strong consumer and government spending.

The BCC predicts that despite renewed caution from consumers as variant COVID cases increase, the momentum from the ending of restrictions will still deliver the strongest growth among household spending in 33 years. Consumers, they say, will be running through the savings they amassed during lockdowns. 

And government spending is expected to have grown by 13.1 per cent by the end of 2021, which would represent the strongest growth on record. This includes COVID expenditure such as the vaccine rollout and the test and trace programme. 

Suren Thiru, BCC’s head of economics, warned that the economic recovery was on far from stable ground, with pandemic-related supply-chain disruptions and low business investment expected to slow growth.

“It is concerning that business investment  looks like being  the weak point of the recovery because it undermines the UK’s ability to raise productivity and increase our long-term growth prospects,” Mr Thiru said.

“Our latest forecast suggests that the  UK economy will emerge from COVID more unbalanced with a growing dependence on household consumption to drive growth. Such imbalances leave the UK  more susceptible to future economic shocks, such as renewed lockdown restrictions.   

“Heightened uncertainty still looms over the UK’s economic outlook. A prolonged period of acute supply and staff shortages could derail the recovery by forcing firms into a more permanent reduction in their operating capacity, eroding their  ability to fulfil orders and meet customer demand.” 

Hannah Essex, co-executive director the BCC, said the government must guard against complacency in the face of strong economic numbers, and recommended the development of a comprehensive rebuild strategy to safeguard the recovery. 

“Government needs to give business a clear contingency plan for any future outbreaks, including what financial support will be provided,” Ms Essex said.

“An economic recovery without business investment is one built on shaky foundations. Bold steps are needed to encourage both domestic and international investment, including delivering on our longstanding call for fundamental reform of our broken business rates system and major incentives to stimulate business investment over the long term.”