Business investment stalls in UK as Brexit uncertainty bites

Business investment in the UK has stalled in the year since the EU referendum, according to official figures published on Thursday.

The level of business investment in the second quarter of this year was £43.8 billion, adjusted for inflation – virtually the same as the three months before last year’s EU referendum.

Businesses’ capital spending had steadily increased between 2009 and the end of 2015, but has been relatively flat since the third quarter of 2015.

The latest figures provide evidence for the argument that Brexit-related uncertainty has led businesses to delay spending decisions.

Earlier this month, Mark Carney, governor of the Bank of England, warned that persistent uncertainty over the UK’s future relationship with the EU was holding back business investment. The central bank governor said the unpredictable nature of Brexit was weighing on supply and demand, with some companies already delaying decisions about entering new markets.

The BoE now expects investment in the UK economy to be 20 percentage points lower in 2020 than it had forecast before last year’s EU referendum.

The BoE agents’ surveys have found that businesses’ investment intentions have been ticking upwards this year, after falling steeply following last year’s referendum. But there can be a long lag between when businesses decide to invest and when they actually spend money, so it may take a while for any change in intentions to be fully represented in official figures.


Howard Archer, chief economic adviser to the EY ITEM Club, said that a rebound in business investment would depend on how the Brexit negotiations progressed.

“If a transition agreement looks increasingly likely as the year progresses, this should be supportive to investment,” he said.

The business investment figures were published by the Office for National Statistics (ONS) alongside its second estimate of UK economic growth for the second quarter of this year.

Overall, the economy expanded at a quarterly rate of 0.3 per cent in the three months to the end of June, the ONS said. The figure was unrevised from the first official estimate, which was published in July.

Growth in GDP was mostly driven by investment in housing and government spending. However, household consumption increased at a quarterly rate of 0.1 per cent, the slowest rate since the final three months of 2014.

The slowdown in household spending was mainly due to a 2.2 per cent decline in spending on transport. The ONS said this could be related to a change to car taxes that prompted consumers to bring forward their car purchases to the first quarter of the year.

Car production

Kallum Pickering, Berenberg’s senior UK economist, pointed out that the Society of Motor Manufacturers and Traders also published data on Thursday showing that car production in July was 17.7 per cent higher than a year ago. He said that this indicated the “dip was probably temporary”.

The latest GDP figures confirmed that overall economic growth in the second quarter was due to growth in Britain’s dominant services sector, while both the construction and manufacturing sector – particularly of motor vehicles – contracted.

“Growth has slowed markedly in the first half of the year, with relatively robust services growth, partly thanks to a booming film industry, offset by weak performances from manufacturing and construction in the second quarter,” said Darren Morgan, head of GDP at the ONS.

“Household spending grew weakly, with the lower-value pound hitting household budgets, while business investment showed no growth at all,” he added.

– (Copyright The Financial Times Limited 2017)

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