Britain recorded the worst investment levels in the G7 in the three months to September as economists predicted a wave of government spending would boost the economy over the next two years.
Official figures showed the total level of public and private investment was at 18.6 per cent in the third quarter of the year, remaining bottom of the pile of the world’s seven biggest economies, made up of the United States, Canada, France, Italy, Germany and Japan. Britain has recorded the weakest investment levels in the G7 for 23 of the past 31 years.
Japan recorded the highest levels of total investment at 27 per cent, while Germany, Europe’s largest economy, which has been in a two-year recession, recorded a rate of 20 per cent over the same period, according to figures from the Organisation for Economic Co-operation and Development.
The UK’s investment rate has been consistently below its G7 peers since the 1990s, leading the Labour government to promise tens of billions in government investment on infrastructure, transport and housebuilding over the course of the parliament.
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Public investment will rise by £13 billion in 2026–27, marking the biggest two-year increase since the financial crisis in 2008, according to economists at PwC. But private investment “will stagnate due to weaker business sentiment and lower profit growth”, Barret Kupelian, the PwC chief economist, warned.
“There will be a much stronger focus on levers for domestic growth [from the government], including public investment picking up at a record pace and continued pressure to deliver on housebuilding and on building infrastructure faster,” he said.
Up to 1,000 investment projects had been pencilled in to start or complete across the economy by 2040, according to EY, the professional services firm, which calculated that government investment was on course to provide £1.1 trillion of the capital costs.
But commitments to ramp up defence spending to 3 per cent of GDP by the end of the decade would leave an investment gap of £583 billion, EY said. Defence spending was on course to hit 5 per cent by 2035, pushing the investment gap to £817 billion, putting further spending pressure on the public finances.
“The government has made significant progress in addressing the UK’s infrastructure funding shortfall over the last year, with a slew of new capital investment unlocked for key projects. However, the 15-year funding requirements to achieve simultaneous transitions across energy, infrastructure, health and defence are also rising,” Mats Persson of EY-Parthenon said.
Britain’s lagging investment rates have been cited as one of the main factors behind the economy’s weak productivity growth. Business investment can help unlock innovation and new technologies, while public investment on houses and transport provides infrastructure for workers and businesses.
Louise Haigh, a former Labour transport secretary, said: “This is nothing new, it’s the short termism and underinvestment that has plagued the UK economy for half a century.
“It’s why the chancellor is rightly focused on boosting public and private investment, reforming planning and our fragmented pension system. And why we need to go much further on financial and fiscal reform to institutions like the Office for Budget Responsibility and the Treasury to encourage long-term investment.
“Our current policy-making cycle based on five year horizons doesn’t give business the long-term confidence or space to make investment decisions and if we’re serious about making the uk the best place to invest then we need to take look at public investment with the same medium and long term lense that the private sector uses.”
Richard Tice, the deputy leader of Reform UK, told The Times the government had “presided over a hostile environment for investors. When faced with rising uncertainty and an administration that is ideologically opposed to any semblance of wealth creation, investors are naturally opting to take their money elsewhere. It’s no wonder that business confidence has plunged to record lows.”
He said his party would “get our stagnant economy growing again by delivering bold incentives for wealth creators, slashing burdensome regulations and incentivising more people into work”.