With the post-Autumn Statement round-up almost fully completed, the single key concern on the long-term health of the economy is the lack of a recovery in business investment.
ADS’ view is that, while the recent recovery in GDP is a good start, not all growth is equal. Unlocking business investment is the only way that the UK will get long-term, balanced growth that delivers highly-skilled well paying jobs, world-class innovation and high-tech exports.
The Office of Budget Responsibility (OBR) – the UK’s independent public finance and economic forecasting watchdog with forecasts – agrees:
The main explanation for those upward revisions has been stronger-than-expected private consumption growth in 2013. Residential investment has also grown more strongly than expected. By contrast, business investment and net trade have continued to disappoint.
While consumer confidence has recovered, credit conditions have eased and prospects for the housing market have improved, productivity and real earnings growth have remained weak.
Ultimately, productivity-driven growth in real earnings is necessary to sustain the recovery and raise living standards.
The OBR’s forecast suggests business investment will fall by 5.5% this year, leaving it 26% below pre-recession levels.
The Centre for Economic and Business Research also raised similar concerns in their post-Autumn Statement round-up:
We…are concerned that the longer term outlook is loaded with strongly optimistic assumptions around the expansion in business investment and earnings growth running close to 4% to support strong gains in household consumption.
Alongside the disappointment from the EEF and the consistent concerns from the TUC’s Duncan Weldon, questions are being raised about business investment from untraditional sources: the Social Market Foundation (emphasis added; full disclosure: I worked at the SMF from ’05-’06):
The Office for Budget Responsibility (OBR) judges that it will bounce back, going up 5% in 2014. That’s a big turnaround and yet there are no obvious new measures in the Autumn Statement to help secure it. Now it may be that an economy that has under-performed for 5 years is stuffed full of investment opportunities, but the OBR has previously forecast jumps in business investment – and they haven’t arrived. Should we be thinking much more actively about policy measures?
Unlocking business investment has to be the single biggest challenge facing the UK economy. Expect to hear a lot from ADS on the issue in 2014.