Skip to main content

Companies cutting investments.

 

Companies cutting investments

Companies are cutting investment in the face of higher interest rates, according to a Bank of England survey released yesterday that raises fresh concerns over the UK’s lacklustre capital spending.

Responding to the central bank’s monthly decision-maker panel, business leaders, on average, estimated that higher interest rates would lower their investment by 8 per cent relative to if they had not increased.

Based on interviews with chief financial officers in the first half of December, the study also showed a 0.5 percentage point rise in wage growth expectations for the year ahead to 6.3 per cent. Probabilities are almost equally split between a 50 and a 25 basis point increase, following a 50bp rise to 3.5 per cent last month.

Interest rates have risen sharply from the record low of 0.1 per cent in November 2021 as the BoE seeks to combat high inflation.

The results of the latest DMP survey — which was set up in August 2016 by the BoE with academics from Stanford University and the University of Nottingham — suggest that the increase in interest rates is likely to hit the already poor level of UK capital investment.

According to the Office for National Statistics, business investment in the third quarter of 2022 was 8.1 per cent below its pre-pandemic level. In addition, the Office for Budget Responsibility sharply downgraded its outlook for business investment in November last year.

The independent fiscal watchdog in March predicted last year that investment would return to pre-pandemic levels by mid-2022, due in part to the «super-deduction» in corporation tax, which expires at the end of March this year. But it now expects that to happen only at the end of 2025.

The significant downgrade results from the UK economy entering a recession, higher interest rates and higher energy prices.

www.sba.tax

Labels:

Comments

  1. Andrew6 January 2023 at 16:54

    The UK needs to encourage businesses to invest, not try to undermine them. Things are already bad so any further measure would just reduce investments just like the survey said.

    ReplyDelete
    Replies
    1. Laurie6 January 2023 at 17:46

      Unfortunately things will only get worse before there's a chance they can get better. The UK government isn't in its best phase now, with so many not so competent people having been at the helm.

      Delete

Post a Comment

Cloud Bookkeeping

US FED rate rise.

  The US Federal Reserve officials have indicated that they plan to resume increasing interest rates to control inflation in the world's biggest economy. During the June meeting, the Federal Open Market Committee reached a consensus to keep interest rates stable for the time being to evaluate whether further tightening of policy would be necessary. However, the majority of the committee anticipates that additional rate increases will be required in the future. The minutes of the meeting have recently been made public. According to the minutes, most participants believed maintaining the federal funds rate at 5 to 5.25 per cent was appropriate or acceptable, despite some individuals wanting to raise the acceleration due to slow progress in cooling inflation. Although Fed forecasts predicted a mild recession starting later in the year, policymakers faced challenges in interpreting data that showed a tight job market and only slight improvements in inflation. Additionally, officials gr...
Post a Comment
Read more

EU business slide.

  S&P Global’s flash eurozone composite purchasing managers’ index, a key gauge of business conditions for the manufacturing and services sector, fell 1 point to 47.1, figures showed yesterday. That is its lowest level since November 2020 and the fourth consecutive month below the crucial 50 mark separating growth from contraction. One of the few bright spots in the survey was that companies in all sectors reported a slight easing of cost pressures, price growth and supply chain constraints. However, prices charged for goods and services still rose at the sixth fastest rate since such data started in 2002. Jobs growth increased marginally from October but remained low compared with the past 18 months. Following a few months of falling price pressure in manufacturing and services, the October print shows an overall stabilisation said Jens Eisenschmidt, chief European economist at Morgan Stanley. However, German businesses, at the hub of Europe’s energy crisis, reported that manu...
1 comment
Read more

Tariffs on UK electric cars.

  The European Commission has confirmed that it will continue with its plan to impose tariffs on electric cars exported between the UK and EU starting next year. This is due to the "rules of origin" requirement that mandates EVs traded across the English Channel to have 60% of their battery and 45% of their parts sourced from the EU or UK or face a 10% tariff. A senior Commission official, Richard Szostak, recently informed parliamentarians from the UK and EU that the bloc's battery investment has significantly declined, making the tariffs necessary to encourage domestic production. In 2022, the EU's share of global investment in battery production shrank from 41% to only 2% after the US offered substantial subsidies through its Inflation Reduction Act. Starting in 2024, car manufacturers in the UK will need to have 22% of their sales come from zero-emission vehicles, which means they may need to import EVs from the continent to meet this requirement. If EU carmakers ...
Post a Comment
Read more