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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.

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  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

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