Investment to fall despite strong economic recovery
Investment may fall because of tax rises and lingering Covid concerns
Business investment is expected to fall this year even as the economy grows at a pace not seen for 72 years.
The British Chambers of Commerce expects the economy to expand this year by 7.1%, which would be the strongest outturn since official records began in 1949.
Staff shortages and supply chain disruption are expected to delay the return to pre-pandemic levels of GDP growth until early next year with growth of 5.2% forecast for 2022.
The recovery is expected to be driven by historically strong consumer and government spending.
But business investment is forecast to decline by 2.5% this year because of the damage done to firms’ finances by the pandemic, a more onerous tax regime and concerns over the potential for future Covid restrictions which will weigh heavily on investment intentions.
Consequently, business investment is forecast to remain 5.4% lower than its pre-pandemic level by the end of 2023.
Suren Thiru, head of economics at the BCC, said: “The UK economy remains on course for a historic revival this year as the release of pent-up consumer demand as restrictions end, and higher government spending helps drive a substantial surge in economic activity.
“However, our latest outlook also points to a loss of momentum in the coming months as staff shortages, supply chain disruption and rising cost pressures limit output from many sectors.
“It is concerning that business investment looks like being the weak point of the recovery because it undermines the UK’s ability to raise productivity and increase our long-term growth prospects.
“Our latest forecast also suggests that the UK economy will emerge from Covid more unbalanced with a growing dependence on household consumption to drive growth. Such imbalances leave the UK more susceptible to future economic shocks, such as renewed lockdown restrictions.
“Heightened uncertainly still looms over the UK’s economic outlook. A prolonged period of acute supply and staff shortages could derail the recovery.”