UK business investment expected to drop

Cumbria Chamber of Commerce reflects on latest figures from the British Chambers of Commerce’s (BCC) economic forecast that business investment in the UK is set to decline this year, despite record economic growth.

The damage done to businesses’ finance by the pandemic, a strict tax regime and concerns over potential Covid restrictions are expected to weigh heavily on investment plans with business investment forecast to decline by 2.5 per cent this year.

BCC has also predicted UK GDP growth for 2021 at 7.1 per cent, if realised this prediction would result in the strongest output since records began. Following robust GDP growth in Q2, economic recovery is expected to slow into the autumn. This is mainly due to staff shortages, supply chain disruption and only lifting Covid restrictions in July. Consequently, UK economy is only due to return to pre-pandemic level in Q1 of 2022.

Suren Thiru, Head of Economics at the British Chambers of Commerce, commented on the forecast: “The UK economy remains on course for a historic revival this year as the release of pent-up consumer demand as restrictions end, and higher government spending helps drive a substantial surge in economic activity.

“However, our latest outlook also points to a loss of momentum in the coming months as staff shortages, supply chain disruption and rising cost pressures limit output from many sectors.

“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.

“Our latest forecast also 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 uncertainly still looms over 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. Renewed restrictions to tackle rising Covid cases would also weaken the projected economic revival by damaging confidence and limiting activity.”

Talking about the announcement, Suzanne Caldwell Managing Director of Cumbria Chamber of Commerce said: “The prospect of record economic growth this year really highlights the resilience of the UK economy and the tremendous hard work of businesses in Cumbria and nationally. But there are numerous threats to this so the Government must not be complacent.

“The challenges businesses are facing, such as significant staff shortages, rising cost pressures and supply chain disruption must not be underestimated. The National Insurance increase announced last week only adds to those pressures.

“A comprehensive rebuild strategy is needed to support businesses and safeguard the recovery. Government needs to give businesses a clear contingency plan for any future outbreaks, including what financial support will be provided. And we urgently need a more flexible immigration system to help tackle labour shortages.

“Economic recovery without business investment is one built on weak foundations. Major steps are needed to encourage domestic and international investment, including incentives to stimulate business investment and reform of the business rates system which we’ve been calling for. Any further tax changes could very well prolong the economic damage from Covid.”

The UK’s economic recovery is expected to be driven by consumer and government spending. Momentum from the ending of restrictions in August means household spending is projected to deliver the strongest growth in 33 years. And Government spending is projected to grow by 13.1 per cent due to Covid related expenditure such as test and trace and the vaccine rollout.

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© Cumbria Chamber of Commerce