Economists believe the UK economy is set for a 2020 boost from increased levels of business investment next year. The consensus is detailed in annual poll of leading economists conducted by The Times newspaper. This year, 79 of the respondents to the survey intimated that they believe that business investment will rebound in 2020 after a long slump as companies waited for more clarity on Brexit and a general global economic slowdown.
However, companies have generally remained financially strong and have, according to numerous official figures and surveys, been simply been holding off on investment. It appears, following the strong Conservative victory in the December general election removed much of the uncertainty around Brexit, the flood gates could be about to open.
That investment should help stimulate the wider UK economy next year. However, many of the economists did warn that there is still a risk that much of the investment will be held off on until trade talks with Brussels have progressed. That could mean the larger part of the business investment benefit is not felt until 2021 and beyond as it trickles through the economy.
The economists polled come from the City of London, universities and leading think tanks. Each year they are asked for the forecasts on major economic drivers including general economic growth from the private sector, interest rates and house prices. Recently their opinions on Brexit have also been asked.
Sixty-five of the respondents still predicted, despite their positive views on business investment growth, that the UK’s GDP will see less than 1.5% growth next year. 20 of the 79 respondents expect the global economy to be sluggish over the year ahead, with growth of just 2.5%. That would represent the weakest growth level since 2008 and, on the International Monetary Fund definition, represent a global recession.
On the bright side, the surveyed economists believe the chances of the UK leaving the EU without a Brexit deal are slight. Around half of respondents believe the chances of the UK leaving with a no-deal Brexit and being forced to fall back on World Trade Organisation terms, is less than 20%. However, they were also sceptical over the chances of a long term trade deal with the EU being negotiated by the end of next year – referring to the timeline as ‘highly ambitious’.
Philip Shaw, fund manager Investec’s chief economist commented:
“The optimism of financial markets following the election result should to a certain extent be mirrored by companies, who may begin to start opening up the capital expenditure taps once again. However, a full-scale rebound in business investment looks unlikely until firms have seen and are happy with the details of the UK’s trading relationship with the EU.”
That sentiment was added to by HSBC’s chief European economist Simon Wells, who stated:
“Business investment has barely grown since the 2016 referendum, whereas it is over 10 per cent higher in Germany, France and the United States. Some lost investment may be recovered now that political uncertainty has fallen post-election, but uncertainty about the UK’s future trading relationships means a large rebound seems unlikely.”