FT: Business investment key to recovery

The FT’s leader today focuses on the sustainability of the UK’s fragile recovery. It’s worth a read, but the key points are as follows:

…it only takes a little digging to realise that the preconditions for a sustained upturn are not yet in place.

One concern is the composition of demand. The main driver of the recent spurt of growth has been consumption, which has jumped on the back of rising house prices and easier availability of credit.

The sustainability of the recovery may well hinge on a pick-up in business investment but, so far, it is not yet clear whether business optimism is translating into new.

If this view feels a bit glass-half-empty, then John Authers at the FT pitches the glass-half-full view on business investment, suggesting reduced uncertainty, rising optimism and pressure from shareholders could lead to a capex comeback.

My view is that some of the natural drags on business investment, as Authers and Deloitte point out, are diminishing.

But economic momentum and pent up demand for capex are unlikely to be enough to bring business investment back to its pre-recession peak anytime soon.