UK business investment is expected to decline this year despite the prospect of record economic growth, according to the British Chambers of Commerce (BCC) economic forecast.
The leading business group predicts UK GDP growth for 2021 of 7.1%, which, if realised, would be the strongest outturn since official records began in 1949.
Following robust GDP growth in the second quarter, the UK’s economic recovery is projected to slow into the autumn as staff shortages and supply chain disruption partly limit the gains from the lifting of restrictions in July. Consequently, the UK economy is only expected to return to its pre-pandemic level in Q1 2022 with growth of 5.2% forecast for 2022.
Business investment is forecast to decline by 2.5% this year. The damage done to firms’ finances by the pandemic, a more onerous tax regime and concerns over the potential for future covid restrictions are expected to weigh heavily on investment intentions, despite the introduction of the super-deduction incentive.
Consequently, business investment is forecast to remain 5.4% 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% higher than its pre-pandemic level over the same period.
In contrast the UK’s economic recovery is expected to be driven by historically strong consumer and government spending.
Despite signs of renewed consumer caution amid rising Covid cases, the momentum from the ending of restrictions is projected to deliver the strongest growth in household spending in 33 years as consumers rundown some of the savings built-up during lockdowns.
Government spending is expected to grow by 13.1% in 2021, which would be the strongest growth on record. This includes covid related expenditure such as the vaccine rollout and the test and trace programme.
Paul Simon, Suffolk Chamber’s head of policy & communications said: “this mixed picture nationally is certainly reflected in what our members here in Suffolk are saying to us.
“At this crucial stage in our economic recovery, declines in business investment – whether that be in new equipment, processes or training staff – is storing up bad news beyond the immediate next few quarters.
“Whilst labour and price inflation, staff shortages and other supply chain issues are at the heart of these declines in investment, Suffolk Chamber is worried that Government policy is actually creating further obstacles. These include a lack of flexibility in the Home Office’s response to some short-term staff shortages and this week’s announcement of a 1.25% increase in employer National Insurance contributions, which come after those tax increases announced in March’s budget.
“Suffolk businesses need more understanding from this Government: in short they need a break from further burdens that will stifle innovation and growth in the longer-term.”
Source: Paul Simon -Suffolk Chamber Head of Policy