Business investment grew 5.2% last year

25th January 2023

Business investment grew a projected 5.2% in 2022 – leaving it 7% below pre-pandemic levels latest EY ITEM Club research has found.

EY ITEM Club now expects business investment to fall of 0.8% this year although weaker business investment is one of the factors likely to slow the recovery from recession. It is predicted that business investment growth of 3.7% is forecast for 2024.

The report says it’s likely that investment growth in 2022 received a boost from the temporary ‘super-deduction’ tax incentive, with some investment brought forward to benefit from the tax break. However, this is expected to be countered by some payback following the super-deduction’s end in April, which the EY ITEM Club says was probably only partially offset by the temporary £1m level of the Annual Investment Allowance becoming permanent.

Beyond tax effects, the EY ITEM Club says the environment for business investment is poor. Recessions typically see business investment fall by more than GDP as businesses faced with weak demand often tend to delay or cancel projects.

Hywel Ball at EY ITEM Club said “Businesses are facing an unprecedented ‘trilemma’ of supply chain pressures, rising inflation and high energy prices creating challenging trading conditions and making it increasingly difficult to balance competing priorities. When faced with this environment, it’s crucial that business leaders capitalise on the opportunities and manage their risks effectively through scenario planning and stress testing. Higher energy prices could, for example, be an opportunity for more investment in energy efficiency or green energy, while a weaker pound could encourage exporters to take advantage of their more competitive international position.”