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Business Environment Profiles - United Kingdom

Business capital expenditure

Published: 24 July 2024

Key Metrics

Business capital expenditure

Total (2025)

238 £ billion

Annualized Growth 2020-25

1.1 %

Definition of Business capital expenditure

This report analyses business capital expenditure in the United Kingdom. Business capital expenditure includes net capital investment by private businesses and public corporations. This includes investments in transport, information and communication technology equipment, other machinery and equipment, cultivated assets, intellectual property products (e.g. research and development), and other buildings and structures. Business investment does not include investment by central or local government, investment in dwellings, or the costs associated with the transfer of non-produced assets (e.g. land). The data is sourced from the Office for National Statistics (ONS), obtained from records of the UK's gross fixed capital formation (i.e. net investment in the UK economy), in addition to estimates by IBISWorld. The ONS adjusts the data for seasonal variations and converts the figures into constant 2016 prices using chain volume measures.

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Recent Trends – Business capital expenditure

Business capital expenditure is forecast to increase at a compound annual rate of 1.1% over the five-year period through 2024-25, to reach £238 billion. While business capital expenditure is expected to be higher in the current year, compared to its value in 2018-19 (£221.6 billion), the change over the five-year period has been relatively volatile.

It is also important to note that business capital expenditure grew consistently in the years prior to the five-year period, partially due to the extremely low levels of expenditure during a period of post-financial crisis austerity - business investment subsequently rose, albeit somewhat tentatively as corporations had ongoing apprehensions regarding the sustainability of the UK's economic recovery. Businesses invest in capital to either replace worn out machinery, equipment and buildings, or to purchase more buildings and equipment to increase the productive capacity of the business. Good conditions for investment, in theory, involve high expectations of return on investment, high business confidence, strong growth in national income, relatively low interest rates, high expectations of future economic growth, lower corporation tax rates, and a high level of saving in the economy which provides additional funds for investment.

Business capital expenditure plummeted following the financial crisis, falling by 7.2% and 14.8% in 2008-09 and 2009-10 respectively, as credit became more expensive and businesses focused on survival rather than expansion. Meanwhile, tight credit conditions were exacerbated by concerns regarding conditions elsewhere in the eurozone, constraining expansion of UK businesses further as insolvency pressures intensified. Since 2010-11, however, businesses have increased capital expenditure as investor conditions in the wider UK economy became more favourable. Buoyed by built up cash piles, enabling faster investment growth; growing confidence; greater business lending; low interest rates; and a change in corporation tax policy during 2014-15, business investment, in both manufacturing and non-manufacturing industries, remained on an upwards trajectory until Brexit-related uncertainty halted business expansion.

Despite reluctancy across the UK economy as a result of uncertainty surrounding the EU referendum, business capital expenditure grew by 4.2% and 0.5% respectively in 2016-17 and 2017-18. Over the two years through 2017-18, many UK operators would have remained reluctant to commit to high-value investments, however, business capital expenditure grew as low financing costs and comparatively strong global growth upheld a propensity to invest among operationally stable businesses. Nonetheless, business capital expenditure declined by 2.4% in 2018-19, with market uncertainties intensifying as perceived negativity emerging from Brexit negotiations, or lack thereof, led to further delays in big-ticket corporate spend.

In 2019-20, however, business capital expenditure rose by a margin 0.9%, with delayed upgrading and labour shortages, the continuation of Brexit uncertainties during the first half of the year and the global outbreak of the coronavirus over the final quarter. Business capital expenditure was expanding during the initial stage of the year through 2019-20, with the UK operating at a record low unemployment rate of 3.8% back in June 2019. Consequently, this was able to stimulate new business investment, with companies adopting new technologies to keep expanding without hiring new staff. While the Bank of England did raise the official bank rate to 0.75% in August 2018, marking only the second hike in a decade, at the time, it remained comparatively low to other G20 counterparts, allowing for new business investment without exceptional loan repayments. As the UK's level of business capital expenditure was expanding during the initial stage of 2019-20, the global outbreak of the coronavirus is expected to have reduced this over the fourth quarter. First identified in December 2019, in Wuhan, Hubei province China, the coronavirus outbreak disrupted supply chains, currency markets, stock markets, commodity markets, consumer demand and business activity.

During 2020-21, business capital expenditure declined by a significant 14.4%, due to the uncertainty and reduced economic activity caused by the outbreak of the coronavirus. In response to the outbreak of the coronavirus, the Bank of England made an emergency cut to the official bank rate on 11 March 2020, from 0.75% to 0.25%, taking borrowing costs back down to the lowest level in history. Furthermore, just eight days later, on 19 March 2020, the BoE cut the official bank rate again, this time to a new record low of 0.1%, from 0.25%. In addition to this, the UK government has introduced a number of stimulatory measures intended to give a shot in the arm to the economy amidst prevalent disruption. For instance, Budget 2020, announced on 11 March 2020 by Chancellor Rishi Sunak, committed to the biggest rise in public borrowing for 30 years and an end to a decade of Conservative austerity, with public sector net investment set to rise from close to 2% of national income, to 3%. Furthermore, the Coronavirus Business Interruption Loan Scheme (CBILS) was introduced, which provides financial support to smaller businesses (SMEs) across the UK that are losing revenue, and seeing their cashflow disrupted, as a result of the coronavirus outbreak.

While bank rates have been cut, which typically allows for new business investment without exceptional loan repayments and notable government support has been established, these measures were not enough to override the drastic damage set to be caused by the coronavirus. This is because the number of pessimistic businesses outstripped the number of optimistic entities in 2020-21.

However, in 2021-22, the United Kingdom entered an economic recovery from the coronavirus pandemic, supported by the COVID-19 vaccine rollout which paved the way for a reopening of the domestic and global economy. As a result, the United Kingdom's level of business investment grew by 6.8%, as business sentiment across the country improved, allowing firms to commit to high-value investments.

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5-Year Outlook – Business capital expenditure

Over the five-year period through 2029-30, IBISWorld forecasts that the business capital expendit...

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