UK business investment set to be left behind

UK business investment set to be left behind

The BCC said that the UK economy is only expected to return to its pre-pandemic level in the first quarter of next year, with a growth of 5.2% forecast for 2022 Photo: Mike Kemp/In Pictures via Getty Images

UK business investment is expected to decline this year, despite the prospect of record economic growth, new research has shown.

According to an economic forecast from the British Chambers of Commerce (BCC), the UK’s economic recovery is projected to slow down into the autumn thanks to ongoing staff shortages and supply chain disruptions across the country.

The business group said due to this that the UK economy is only expected to return to its pre-pandemic level in the first quarter of next year, with a growth of 5.2% forecast for 2022.

This is following strong GDP growth in the second quarter of this year.

As the economy returns to some level of “normality”, the UK recovery is expected to be driven by strong consumer and government spending.

“Despite signs of renewed consumer caution amid rising COVID cases, the momentum from the ending of restrictions is projected to deliver the strongest growth in household spending in 33 years as consumers rundown some of the savings built-up during lockdowns,” the BCC said.

Government spending is expected to grow by 13.1% in 2021, which would be the strongest growth on record. However, business investment is forecast to decline by 2.5% due to the havoc wreaked by the pandemic, and potential future COVID restrictions.

Read more: FTSE hits one-month high as UK grows at fastest pace since July 2020

The data showed that business investment is forecast to remain 5.4% lower than its pre-pandemic level by the end of the forecast period in Q4 2023.

In contrast, consumer spending is projected to be 5.1% higher than its pre-pandemic level over the same period.

“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,” Suren Thiru, head of economics at the British Chambers of Commerce, said.

“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.”

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The research also highlighted rising pressure on consumer prices due to pent-up demand and the cost of raw materials amid ongoing supply chain disruption. 

This is expected to push inflation to a peak of 4.0% in the last quarter of the year, which would be the highest rate since Q4 2011.

It comes as a number of high-profile companies have faced supply chain issues in recent weeks, including factory production constraints, rising commodity prices, transport disruption, and recruitment issues.

In July, the Road Haulage Association (RHA) reported that there is a shortage of around 100,000 drivers, warning that the situation had reached a “crisis point” with critical supply chains failing.

Watch: Staff shortages and supply disruption threaten to derail recovery – BCC