Government should do more to boost flagging company investment business group says

Jasper Jolly
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Business investment feeds through to productivity growth (Source: Getty)

An influential business group has called for government to do more to tackle falling capital spending as fears are rising about a slowdown in long-term business investment.

The Institute of Chartered Accountants (ICAEW) forecasts businesses will invest 1.9 per cent less in 2017 as companies start a “period of restraint” during the Brexit process.

Stephen Ibbotson, ICAEW director of business, said: “The chancellor’s spring Budget was something of a missed opportunity, with no solid stimulus announced to drive growth during a time when nobody is really certain what the financial impact of triggering Article 50 will look like.”

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In the Budget chancellor Philip Hammond did not commit to any large investments, instead prioritising leaving £26bn of fiscal headroom below his deficit reduction target.

Hammond has previously said he would hold back spending undershoots in case the UK economy fares worse than the government expects.

The autumn Budget may have more in the way of new spending. In November Hammond signalled his intention to move to one major fiscal event in the year in the autumn.

However, the lack of measures aimed at boosting support to business does not help confidence, the ICAEW said.

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The ICAEW predicts slightly weaker economic performance from the UK this year, with GDP expanding by 1.6 per cent this year as the slowdown in business investment hits.

This stands in contrast to the government’s Budget watchdog, the Office for Budget Responsibility (OBR), which forecasts growth to accelerate marginally to two per cent this year.

Ruth Lea, an economic adviser to Arbuthnot Banking Group, cautioned the forecasts should be kept "in context", given the large margins for forecast error.

"Business investment will probably be broadly flat," Lea said. The OBR also predicts a far smaller contraction in business investment, with a 0.1 per cent decline after a 1.5 per cent fall in 2016.

The OBR also expects investment to bounce back strongly in 2018 to increase by 3.7 per cent.

A contraction in business investment would almost certainly have a negative impact on productivity growth, which has lagged in the UK since before the financial crisis.

Ibbotson said: “It’s important to remember that ensuring the UK is match fit for Brexit is a marathon, not a sprint, and so more focus should be placed on long-term projects that drive productivity and enable businesses to flourish within a landscape that is yet to be explored.”

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