Record investment calms stagnation fears for economy

Martin Beck, senior economic advisor to the EY ITEM Club.
Martin Beck, senior economic advisor to the EY ITEM Club.
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Record investment levels by firms mean that the UK economy will avoid the threat of secular stagnation.

This defies warnings from some leading economists that a lack of appetite to spend among companies in advanced economies will lead to persistently slow GDP growth, according to EY ITEM Club’s special report on business investment.

Martin Beck, senior economic advisor to the EY ITEM Club, said: “Contrary to the fears of some economists that the global economy is heading towards secular stagnation, we are confident that the UK will avoid this threat. UK business investment has performed impressively in recent years, substantially outgrowing other components of GDP since 2010.”

Following a sharp decline of almost 20 per cent during the financial crisis, business investment in the UK has performed relatively strongly since the economy emerged from recession at the end of 2009.

Since 2010, investment by UK firms has more than made up for the ground lost in the recession, reaching 11 per cent of GDP in Q2 2015, the highest level since the end of 2000.

EY ITEM Club forecasts investment by firms to rise by an average of 6.4 per cent a year from 2015 to 2019, when it is expected to reach a record high of 12.9 per cent of GDP. Cuts in corporation tax, low borrowing costs, increasing availability of finance, healthy corporate balance sheets, more expensive workers and cheaper energy are all expected to contribute to this rise.