Productivity lower than trend

Investment dips as optimism weakens

Wireline industryInvestment is likely to slow down as business optimism slumps to its lowest in over a year, according to a new survey.

The latest data points to expectations of a continuing slowdown in the rate of economic growth in the spring as global economic problems start to affect UK demand.

The Business Trends Report by accountants and business advisers BDO  says the gloomier long-term outlook is prompting fears that businesses could be reluctant to invest, which would add to downward pressure to the UK economy.

As Britain’s productivity has grown at half of its trend rate in the last year, a drop in investment would hit growth prospects particularly hard.

The rate of growth in employment is also dipping and at its lowest since early 2014. As employment returns to levels observed before the financial crisis, businesses will only be able to grow by boosting productivity.

Martin GillCommenting on the findings, Martin Gill (right), head of BDO in Scotland, said:  “Doubts about the world economy are making the UK’s business people question whether now is the time to ramp up their investment plans.

“We need to see the government’s messaging around supporting the manufacturing economy backed up with action to give businesses the confidence to invest for the future.

“For instance, increasing the annual investment allowance would provide a greater incentive for companies to invest in the plants and machinery. We can’t say that this would solve the UK’s poor productivity performance by itself, but it would be a useful and easy step for government to take to improve the ability of our economy to grow.”

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