Positive outlook for business investment - report
The outlook for UK business investment is potentially very positive as the economy recovers from the impact of Covid-19, according to a new report from EY.
Following a 10.2 per cent contraction in UK business investment in 2020, April 's EY ITEM Club Spring Forecast predicted investment will climb 7.1 per cent in 2021 and 10.5 per cent in 2022.
The latest EY ITEM Club analysis finds that, despite the economic impact of the pandemic, some sectors increased investment in 2020.
Further, a number of factors have now aligned to create the potential for strong future UK business investment growth.
While the impact of lockdown restrictions and the pandemic contributed to some economic sectors - such as mining and quarrying (-52 per cent), construction (-39 per cent), and engineering and vehicles (-35 per cent) - seeing significant falls in business investment in the fourth quarter of 2020 compared to a year earlier, other sectors delivered sizeable growth.
Efforts to combat Covid-19 with vaccines, track and trace, and distanced workplaces, a shift to remote working and learning, and the move to online shopping all helped push up investment in transport and storage (up 34 per cent), education (22 per cent), IT and communications (15 per cent), real estate (10 per cent), and the health sector (5 per cent).
As a whole, the services sector increased business investment by 6% between the fourth quarters of 2019 and 2020.
The EY ITEM Club says that business investment is set to be further supported by the end of Brexit uncertainty in many sectors, sizeable amounts of cash accumulated by the corporate sector over the last year, the possibility of rapid consumer spending growth, government commitments to increased public investment and levelling up the UK economy, and the likelihood of continued historically low interest rates.
Peter Arnold (pictured), an EY UK economic advisory partner, said: “The prospects for UK business investment are looking much better coming out of the pandemic than at any point since before the financial crisis.
“In context, while the decline in business investment in 2020 was significant, it shouldn 't be over-emphasised.
“It was only slightly deeper than the pandemic-driven 9.8% fall in GDP. By contrast, the 15.3 per cent decline in business investment in 2009 amid the financial crisis was three times greater than the 4.1 per cent GDP contraction that year.
“A key factor supporting business investment this time around is that the pandemic did not limit bank lending in the same way that we saw during the financial crisis - instead, we saw the opposite.
“The banking sector entered the pandemic well-capitalised and funding has been readily available to support businesses and households. The economic effects of the pandemic have also been felt most in less capital-intensive sectors, like hospitality. ”