UK business investment to rise in 2022
Business investment has stalled and declined since the beginning of the pandemic at the start of 2020, with the major drop off occurring around the time of the first lockdown. But industry experts and analysts now believe that we’re about to see the tide turn in terms of business investment as we head into 2022.
A strong rebound would support the overall recovery in the economy, and would of course be positive news for employment numbers and other key metrics that tell us how the UK economy is doing. There’s a lot to look at as we head into the new year and anticipate the investment that’s expected.
So what’s behind this potential investment rebound? What’s likely to cause it and what are some of the danger signs that might throw expectations off course? We’re going to discuss all of that and much more today, so read on.
Investment expected to rebound
As far as most analysts are concerned, a rebound is due. This would signal a reversal in the patterns we’ve seen over the past 18 months to two years. The suppression of investment capital is obviously linked to the pandemic and the subsequent lockdowns that it necessitated. But just because a rebound is expected, that doesn’t mean it’s guaranteed to take place.
Analysts and banks are looking at the situation and seeing a lot of capital that’s waiting to be used, and with the worst of the pandemic hopefully behind us, it would make sense for some of that money to start being invested again. But there’s a wide range of factors that’ll impact whether or not that happens. And we’re going to cover those factors later.
Consumer consumption is rising
One of the metrics that’s currently on the rise is consumer consumption. This is an indicator that the UK economy is in better health than many people might have feared. With the pandemic and everything that’s going on, some feared that it would take longer for consumption to increase for people to feel happy spending their excess money.
With money flowing into the economy via consumer spending, this again raises the chances of business investment rebounding in the early months of 2022. Investors might be treading more carefully and taking a more cautious approach if consumer sentiment was down and consumption was low because that would signal a less than ideal investing environment.
Investment sparked by the government’s tax super-deductions
One of the major catalysts for investment and economic activity in the UK right now is the super-deduction that’s giving many businesses a huge tax advantage. There’s a 130% discount available for businesses that invest their money. There are plenty of rules and conditions that come with this deduction, but many businesses will be hugely incentivized to invest because of it.
There’s a little uncertainty about the kind of spending and economic activity these super-deductions will encourage, however. That’s something that time will tell. It might be the case that it will simply bring investments forward rather than incentivizing entirely new types of investment. Even so, that alone would be beneficial to an economy that’s been under strain and lacking investment because of the pandemic.
A backlog of cash and projects caused by lockdowns
The lockdowns we’ve seen over the past couple of years have had many knock-on effects for businesses. One of the things that’s certainly happened is many projects have been sidelined and put on the back burner until the uncertainty brought about by the pandemic was over. Taking risks and making changes is not something businesses want to do in uncertain times.
But with a backlog of delayed projects and a backlog of investment capital waiting to be spent, many analytics think that it’s only a matter of time before some of that money starts flowing back into the economy and businesses start rolling out projects and planned changes that were delayed for so long because of Covid-19.
Potential threats to the rebound
There are many things that might cause fresh uncertainty, and with fresh uncertainty comes hesitance from investors. We’re now seeing the first signs of a new Covid-19 variant, and how the Omicron variant behaves and the severity of the illness it causes are all factors that can impact any potential rebound in the realm of UK business investment.
If the news was bad and strict lockdowns in the style of March 2020 were required, that would not be good for the chances of an investment rebound. That’s far from certain and signs at the moment suggest that new lockdowns of that kind remain highly unlikely, even with a new variant of the virus to take into account.
It comes down to production and consumption activity
When all’s said and done, it’s the balance of production and consumption activity that will determine the investment environment in 2022. Businesses can only do so much to encourage investment or make investing worthwhile, using the business resources and government incentives at their disposal. However, there are challenges and roadblocks to overcome.
Production activity, for example, has had to deal with huge shortages and supply chain delays over the past year or so. There’s hope that those supply chain issues will ease up in the year ahead, but there are no certainties regarding that. And consumption figures will need to remain high in order for the investment environment to remain attractive too. So these will be factors that analysts will be keeping an eye on.
Investment intentions are rising
There are surveys carried out regularly that look at sentiment in the business world and the sentiment among business investors. Right now, the surveys suggest that investors are intending to spend. That intention suggests that investors have been waiting things out over the last couple of years and are now planning to push forward with investment plans in 2022.
Of course, as we’ve already discussed, investor sentiment can change very rapidly upon breaking news of one kind or another. So although it’s looking likely that investors are intending to put their money where their mouths are right now, things can change very quickly and that’s something that we should never overlook.
Increased investment might still leave the UK behind other large economies
One of the interesting things about UK business investment figures is that even with a rebound in 2022, that wouldn’t necessarily mean that the UK catches up to investment figures in other major economies. The UK has been lagging behind for some time in this department, and even a 2022 rebound would leave the UK behind countries like the US and France when it comes to capital expenditure.
There are many reasons why this has been the case, and one of them is that other countries had stronger economic recoveries immediately after the first wave of the virus than the UK did. So the fact that the economy is still continuing to stall and hasn’t seen the capital expenditure increases seen in other countries since the onset of the pandemic will be a cause for concern for many.
Greater digitisation and efficiencies since the pandemic
One of the positive things that has come about since the rise of the pandemic is a greater digitisation of the economy. This is something that has been forced on UK businesses as they had to adapt to remote working and not being able to work together in office spaces. Rapid digitisation of the economy was always going to be needed, and Covid-19 has hastened it.
The fact that the economy is now more reliant on digital approaches means that it’s also becoming more efficient. And that’s something that should be beneficial and open up a range of new opportunities in the near and more distant future. We might even start to see the benefits of this shift as early as 2022. In fact, we’re already seeing greater spending on things such as software and research and development.
Another issue that’s worth mentioning with regards to UK business investing is Brexit and how the uncertainties that it has created and continues to create are impacting the economy. It’s one of the things that makes business investors uncertain, and as we’ve discussed, that uncertainty will lead to caution and hesitancy when it comes to investing money in the UK economy.
There’s also the uncertainty around Northern Ireland and the dispute that’s ongoing between the UK and EU on those matters. All of this contributes to the wider sense of uncertainty as we head into a new year. These are all things that will play out and impact the economic environment and the way in which investors use their money next year and beyond.
As you can see, there are lots of things that will dictate how the investment figures rebound for the UK economy as we head into 2022. With beneficial government incentives and the right macroeconomic environment, there’s certainly a chance that 2022 could be a positive year for capital investment in the economy.