Business investment could be revived in ‘promising’ sign, BCC says
Business investment could soar as high as 4.8 per cent this year, a leading commercial group has predicted, bulldozing through its previous expectations of a paltry 0.6 per cent rise.
Little cash has been put into making firms more effective in recent years, which has in turn stalled growth and hampered the UK’s ability to stay competitive.
But the British Chamber of Commerce (BCC) is now predicting that firms in ICT, manufacturing and financial services are ready to invest funds in signs of green shoots in the UK economy.
Business investment has been particularly weak since the pandemic, only rising above 2.5 per per cent twice in the last three years.
BCC head of research David Bharier said the new forecast was “promising” but most small and medium-sized firms were not experiencing growth as they have to “grapple with a range of cost pressures—most notably the rise in national insurance contributions, cited as the top concern by firms”.
He also pointed to the industry body’s prediction that there will only be one more interest rate cut this year as a factor “weighing on business confidence and borrowing appetite”, thereby reducing investment prospects.
“Without action, the UK risks becoming a two-speed economy, where high-margin sectors surge ahead while low-margin businesses fall further behind, unable to absorb mounting cost pressures,” Bharier said.
In its quarterly economic forecast, the BCC said UK GDP growth will be 1.1 per cent this year, a slight upgrade on its previous 0.9 per cent projection.
The lift came alongside positive expectations on trade after the government secured deals with the US, EU and India.
Inflation threat to investment
The BCC said UK exports would grow by two per cent this year, a big revision from its previous forecast pencilling in a 0.5 per cent contraction.
Imports are expected to grow three per cent this year before falling to 1.2 per cent next year.
Vicky Pryce, the chair of the BCC Economic Advisory Council, said the growth upgrade was “masking some persistent challenges under the bonnet of the UK economy”.
“Inflation is in danger of remaining stubborn for the foreseeable future, casting fresh doubt on the likelihood of further interest rate cuts any time soon,” Pryce said. “SMEs are crying out for an easing of cost-pressures to allow investment to increase across all sectors.
“Businesses have welcomed recent UK trade deals but they are holding their breath as they await the next twists and turns in the uncertain US tariff story.”