Companies finally taking the plunge with new investments - EY ITEM Club

26 February 2014

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  • Consumers are handing on the baton to businesses
  • Business investment has increased for four consecutive quarters
  • But exports needs to pull their weight for the recovery to be sustained

Andrew Goodwin senior economic adviser to the EY ITEM Club, comments on today’s GDP numbers:

“The latest GDP numbers suggest the baton is finally being handed from the consumer to businesses. Revisions to the business investment data show it has now increased at a relatively punchy rate for four consecutive quarters. With corporate borrowing subdued, companies are finally taking the plunge with new investments by digging into their large cash piles. The recent increases in IPOs and M&A activity also point towards stronger confidence, helping to loosen the purse strings.

“This pickup in investment is a positive sign, with more balanced growth crucial to a sustainable recovery in the UK economy. With surveys reporting further strengthening investment intentions and key downside risks melting away, we expect this robust recovery in capital spending to continue.

“The consumer no longer appears to be the sole protagonist in the UK recovery. Improved job security had boosted confidence and encouraged households to spend more and save less over the past eighteen months. But this could only last so long without a pickup in real wages – so slower consumer spending growth is not surprising.

“Unfortunately exports are still failing to pull their weight. While net trade did provide a positive contribution to GDP growth in the final quarter, this largely reflects a contraction in import demand. However, with demand from some of the UK’s key trading partners expected to increase through 2014, we should see improvement in net trade over the next year, further lifting the spirits of UK businesses.”