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Business Environment Profiles - United Kingdom

Real gross fixed investment

Published: 25 July 2024

Key Metrics

Real gross fixed investment

Total (2025)

431 £ billion

Annualized Growth 2020-25

1.3 %

Definition of Real gross fixed investment

This report analyses total capital expenditure in the United Kingdom. Capital expenditure includes business capital expenditure, comprising capital expenditure by public corporations (excluding expenditure on dwellings) and private businesses, general government capital expenditure, capital expenditure on dwellings (by both the private sector and public corporations), and transfer costs. The data is sourced from the Office for National Statistics (ONS) in addition to estimates based on data released by the Office for Budget Responsibility (OBR) in March 2019. The ONS adjusts the data for seasonal variation and uses chain volume series. Figures are quoted in fiscal years.

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Recent Trends – Real gross fixed investment

Total gross fixed investment can be broken in to three types of capital expenditure. Business capital expenditure constitutes the largest share of total capital expenditure, averaging roughly 54.5% of the total over the past five years. In theory, business investment is a function of income and interest rates, although in practice business confidence and the availability of credit play a significant role. Similar factors also influence capital expenditure on dwellings, which accounts for approximately one-third of total capital expenditure, on average. Capital expenditure on dwellings increased marginally as a share of the total over the past five years. This was driven by private investment during the early stage of the period, as capital expenditure on dwellings contracted significant during 2020-21, as a result of the global economic uncertainty caused by the outbreak of COVID-19 (coronavirus). Government capital expenditure grew as a proportion of the total, predominately due to the dramatic rise in government expenditure in 2020-21 and to a certain extent in 2021-22, in response to combat the damages caused by the coronavirus.

Following the onset of the financial crisis, unemployment increased, business and consumer confidence plummeted, banks struggled to survive, and the few households or businesses that wanted to spend struggled to source credit. Not surprisingly, business and dwelling capital expenditure plummeted. Total capital expenditure bounced back in 2010-11 as business and consumer confidence improved. Private expenditure and government expenditure were constrained over the following two years, however the economy's steady recovery since 2013-14 has led to rising capital expenditure. Cash piles built up by UK business over recent years have enabled investment expansion even without business lending over the past five years. However, over the two years through 2019-20, total capital expenditure in the United Kingdom rose by 1.2% in 2018-19 and rose by a mere 0.3% in 2019-20. This was primarily due to a fall in business investment during this period, spurred by intensifying market uncertainties from the negatively perceived Brexit negotiations, or lack thereof, leading to further delays in big-ticket corporate spend.

During 2020-21, the UK's total capital expenditure contracted by a significant 8.5%, to reach £365.7 billion, due to the uncertainty and global economic slowdown caused by the outbreak of COVID-19 (coronavirus). First identified in December 2019, in Wuhan, Hubei province China, the coronavirus outbreak spread globally, with the domestic situation gaining momentum in February 2020 and worsening thereafter. The coronavirus pandemic led to a disruption to supply chains, currency markets, stock markets, commodity markets, consumer demand and business activity which have all combined to result in a global economic slowdown. The coronavirus outbreak also led to nationwide containment efforts which has resulted in people working from home or self-isolation across the United Kingdom and the world.

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 were losing revenue, and seeing their cashflow disrupted, as a result of the coronavirus outbreak.

While bank rates were cut, which typically allows for new 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 consumers and businesses within the economy outstripped the number of optimistic entities for at least the short term. During 2020-21, the United Kingdom faced a challenging economic period, characterised by significant reluctancy across the country to commit to high-value investments. While government capital expenditure increased in response to the coronavirus pandemic, general government expenditure's average contribution to the UK's total capital expenditure over the five-year period is just 16.6%. Nonetheless, business capital investment and capital expenditure on dwellings fell significantly during 2020-21 which therefore heavily dictated the trend in the UK's total capital expenditure.

However, the UK's level of capital expenditure increased by 4.1% during 2021-22, as the significantly damaging effects of the coronavirus such as nationwide lockdowns and stay at home measure dissipated. This was facilitated through the reopening of the domestic and global economy, which was made possible through the reduction in severe coronavirus cases and deaths through the rollout of the COVID-19 vaccines. Over, the current year, this trend is expected to continue with IBISWorld estimating that real gross fixed investment will rise by 5.1% in 2022-23, to reach £400.2 billion. This rise in investment is primarily due to business sentiment and improved certainty despite rate rise from the Bank of England which typically dampens investment. In response to rising inflation, the Bank of England raised the official bank rate to 0.25%, 0.5%, 0.75%, 1.25% and 1.75% respectively in December 2021, February 2022, March 2022, June 2022 and August 2022.

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5-Year Outlook – Real gross fixed investment

Over the five-year period through 2029-30, IBISWorld forecasts that real gross fixed investment i...

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