Damage done to businesses’ finances by coronavirus, a strict tax regime and concerns over potential restrictions are expected to weigh heavily on investment plans with business investment forecast to decline by 2.5 per cent this year.
The latest figures from the British Chambers of Commerce forecast that business investment in the UK is set to decline this year, despite record economic growth.
It has also predicted UK GDP growth for 2021 at 7.1 per cent and if it is realised, it would result in the strongest output since records began.
Following robust GDP growth in quarter two, economic recovery is expected to slow into the autumn.
This is mainly due to staff shortages, supply chain disruption and only lifting COVID restrictions in July. Consequently, UK economy is only due to return to pre-pandemic level in quarter one of 2022.
Suren Thiru, head of economics at the British Chambers of Commerce, said: “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 UK’s economic outlook.”
Suzanne Caldwell, managing director of Cumbria Chamber of Commerce, said: “The prospect of record economic growth this year really highlights the resilience of the UK economy and the tremendous hard work of businesses in Cumbria and nationally. But there are numerous threats to this so the Government must not be complacent.
“The challenges businesses are facing, such as significant staff shortages, rising cost pressures and supply chain disruption must not be underestimated. The National Insurance increase announced last week only adds to those pressures.
“A comprehensive rebuild strategy is needed to support businesses and safeguard the recovery.
“Government needs to give businesses a clear contingency plan for any future outbreaks, including what financial support will be provided. And we urgently need a more flexible immigration system to help tackle labour shortages.
“Economic recovery without business investment is one built on weak foundations. Major steps are needed to encourage domestic and international investment, including incentives to stimulate business investment and reform of the business rates system which we’ve been calling for. Any further tax changes could very well prolong the economic damage from COVID.”
The UK’s economic recovery is expected to be driven by consumer and government spending.
Momentum from the ending of restrictions in August means household spending is projected to deliver the strongest growth in 33 years. And Government spending is projected to grow by 13.1 per cent due to COVID-related expenditure such as test and trace and the vaccine rollout.