UK Business Investment Resurgence Underway

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A business "investment resurgence" is underway as UK companies look to invest in equipment, according to researchers at Deutsche Bank.

In fact, Deutsche Bank finds that aggregate investment growth since the Great Financial Crisis of 2008 is only second to the US among G7 economies.

The findings provide a counterview to claims that UK businesses are not investing enough in equipment, which is necessary to boost worker productivity.

But according to Deutsche Bank, business investment is now running comfortably above its pre-pandemic level, having grown by a solid 5.5% in 2023.

Sanjay Raja, Senior Economist at Deutsche Bank says there are four things driving this investment resurgence:

A substitution away from labour into capital. "With labour becoming more scarce in the last few years and wage growth surging well above levels seen in the US and EA, firms may have increasingly turned to capital investment to boost productive capacity," he explains.

Re-shoring of manufacturing. Raja cites a recent survey noted that nearly 60% of UK manufacturers have engaged in reshoring their supply chains over the last year or so, which has likely added to investment levels.

Fiscal incentives. The government's super deduction scheme and new capital allowances scheme provide tax breaks for companies investing in equipment.

Government investment. Raja finds government investment rose materially during the pandemic (given the accounting treatment for certain COVID-related schemes) and remains elevated.