Loose monetary policy and high profit margins for UK investment should translate into significant business investment. Pension auto-enrolment and the National Living Wage have driven the cost of labour up and companies are close to capacity after a 9 year positive run for the economy.
A fear of Brexit uncertainty has caused firms to hoard cash in response, lowering business investment.
Business investment has been 3 to 4 percent lower than it otherwise would have been according to the Bank of England.
According to Pantheon Macroeconomics:
"Business surveys clearly indicate that Brexit is to blame for the decoupling between investment and current economic fundamentals."
A record £57 billion in currencies & deposits was amassed in the first year after the referendum, with the accumulation continuing ever since. 37% of GDP is now held in deposits, an increase of 5% since the referendum.
A decline in investment is not the only reason for the lack of investment, as the cash is also being earmarked for financing.
Once Brexit occurs, the massive backlog of cash could be injected in to the economy.
A soft Brexit is far from certain however, as the latest proposal from the British government is likely to be rejected by the EU. This proposal is also viewed negatively by some of the hard line elements in the Conservative Party.
Pantheon Macroeconomics predicts that investment will increase to 3% in 2019, up from 0.8% this year with GDP growth set to rise to 1.7%.
Your financial adviser can help to make sure you are sufficiently diversified and in the right investments that will help you to achieve your long term goals.
The value of investments and income from them may go down as well as up and you may not get back the original amount invested.
Information is based on our current understanding of taxation legislation and regulations which is subject to change.
Past performance is not a reliable indicator of future performance.
Softer Brexit may lead to wave of business investment