UK Businesses Still 'Reluctant to Invest' Over Brexit and Interest Rates

The British Chambers of Commerce (BCC's) Quarterly Economic Survey (QES) found that the vast majority of respondents had frozen or cut investment plans, with only 23 per cent saying they were considering fresh injections of cash to improve the way they operated.

The QES is closely watched by policymakers such as the Treasury, the Bank of England, and the Office of Budget Responsibility, while also attracting significant media attention since it provides a wealth of data on UK business conditions.

"Businesses are reluctant to invest in new machinery and technology because they are unsure about the future of the UK economy," said Shevaun Haviland, the BCC's director general.

Furthermore, the director general stated that the aforementioned survey results were a "major concern" as they showed that businesses were still feeling the negative impact of Brexit.

"The barriers to trade with the EU are making it difficult for businesses to export their goods and services, and high-interest rates are making it more expensive for businesses to borrow money," Haviland said. "The government also needs to invest in infrastructure and skills to help businesses grow and create jobs," she added.

The BCC's survey results are echoed by other recent reports, which have shown that business investment in the UK has fallen behind other developed countries in recent years.

A report by the think tank Centre for Economics and Business Research (CEBR) published in June, found that business investment in the UK was 10 per cent lower than it would have been without Brexit.

The CEBR said the uncertainty caused by Brexit had led businesses to delay or cancel investment plans. "Brexit has been a major drag on business investment in the UK," said the CEBR's director of economics, Lee Hopley.

David Bharier, the lobby group's Head of Research, said the results of the survey point to tough trading conditions for many firms as inflation, labour shortages, global trade barriers and interest rate rises continue to bite.

He said: "Manufacturers have reported a particularly tough quarter, and it will be crucial over the coming months to see how this trend plays out."

The uncertainty about the government's plans for infrastructure developments and the threat of further customs checks at the EU border was also holding back investment since most firms continue to report no increase in their investment intentions. This is in part a reflection of broader uncertainty, with little clarity on major long-term projects and yet more trade barriers to come with the EU.

Business investment in the UK bounced back in the first six months of 2023, but the nine per cent year-on-year increase was boosted by exceptional investment from aerospace firms in new planes and a generous tax break that expired in April.

A survey of businesses conducted before the Bank of England held interest rates at 5.25 per cent last month found that two-fifths of UK firms (41%) now expect their prices to increase in the next three months, down from 55 per cent in the first quarter.

The expectation among businesses that inflation will be lower than forecast earlier in the year is likely to further reduce the pressure on the central bank to raise rates at its next meeting in November.