UK: Deloitte Monday Briefing: Some Positive Signs on Investment

Last Updated: 26 November 2013
Article by Ian Stewart

Most Read Contributor in UK, August 2017
  • Business investment throughout the rich world has been disappointingly weak in recent years. Despite the recovery in the wider UK economy, business investment fell by 8.5% in the year to the second quarter of this year. There are a number of theories as to why this has happened.
  • Economic uncertainty and the risks attached to investing in such volatile times offer an obvious explanation.
  • Credit constraints have also played a role. Smaller and medium sized businesses have faced significant difficulties accessing bank credit in recent years. The credit crunch may also have made some firms permanently more wary of relying on bank borrowing to finance capital spending.
  • For the City economist Andrew Smithers, investment in the UK and US has been weak for the last two decades because of the structure of executive compensation packages. By tying compensation to share prices, Mr Smithers argues that management has been incentivised to focus on short-term profit maximisation at the expense of investment.
  • An alternative hypothesis, based on the notion that the UK may be coping with the after effects of past over-investment, has been advanced by Dr. Peter Warburton of the consultancy Economic Perspectives. Dr. Warburton suggests that abundant credit and exuberance in financial markets before the crisis may have led to excessive investment. To eliminate the excess requires a sustained period of under-investment.
  • There is no definitive explanation for the weakness of investment. But the accumulation of new data will, in time, help answer this puzzle.
  • The good news is that surveys of firms increasingly point to a rebound in capital spending.
  • Surveys from the CBI and Chambers of Commerce suggest that firms are not operating with huge amounts of spare capacity. Indeed the CBI reports that capacity utilisation in small and medium sized firms – precisely the sort of businesses one would think had been hardest hit by the recession - is running at the highest level in 25 years.
  • If the capital stock is becoming worn out the returns to investment, particularly at low current borrowing costs, ought to be attractive.
  • Surveys also show that firms are gearing up to increase investment in the coming months. The Deloitte CFO Survey shows that risk appetite among Chief Financial Officers is at the highest level in six years. Banks report that demand for credit to fund capital spending is at the highest level in six years.
  • Increasingly companies have the means to invest. The weight of evidence suggests that they are likely to start doing so in 2014.


UK's FTSE 100 ended the week down -0.3%.

Here are some recent news stories that caught our eye as reflecting key economic themes:


  • Greece more than doubled its forecast for a budget surplus before interest payments this year, with finances boosted by a bumper season for tourism
  • The Irish Fiscal Advisory Council warned that Ireland has a 50/50 chance of missing budget deficit targets in 2015 after it decided to ease planned austerity measures next year
  • Tobacco firm Philip Morris International has said it will enter the e-cigarette market in 2014, in the face of growing demand for the products
  • European car sales rose in October, led by a strong rise in Spanish sales and registering their first back-to-back monthly growth since September 2011
  • Electronics retailer Dixons said that sales of electrical cooking equipment, such as mixers and blenders, have been outstripping sales of tablets in some stores – driven by the rising popularity of baking in England
  • UK motorists are paying the lowest average petrol prices for more than two and a half years, according to the AA
  • The Governor of the Central Bank of Nigeria warned that weaning emerging markets off the global credit created by the US governments asset purchase programme would be like overcoming a drug addiction
  • Moet and Chandon launched its first products made in India, specifically for the Indian market, with a Chandon Brut and Chandon Brut Rosé sparkling wines, made in Maharashtra, selling for around £12 a bottle
  • The University of Nicosia in Cyprus is to become the first university in the world to accept the virtual currency bitcoin, and will also offer a degree in digital currency under plans to develop Cyprus into a hub for bitcoin trading, processing and banking
  • Business activity in France has fallen to 5-month low according to survey data from Markit
  • UK factory orders rose unexpectedly in October to their highest level in more than 18 years
  • Confidence in the UK's financial system has risen to its highest rate in over five years, according to the Bank of England's System Risk Survey
  • Russia's central bank highlighted "exceptionally high" levels of household debt as a threat to the country's "financial stability"
  • Supermarket chain Morrisons is to offer online shoppers refunds if they are unhappy with their fresh food and the ability to choose the cut and thickness of their meat via a virtual butcher
  • A job happiness index compiled by recruitment agency Monster and research firm GfK ranks Canadians as the happiest in their jobs, followed by the Dutch and the Indians – with no Indian surveyed admitting to hating their job
  • The percentage of recent graduates working in jobs which do not require degree has risen to 47% from 39% before financial crisis according to official data
  • The Indian government is "is considering sharp new limits on investment in the country's pharmaceutical industry" in order to bar foreign companies from taking control of makers of "rare and critical" medicines
  • Venezuelan president Nocolas Maduro ordered a military occupation of a chain of electronics stores, with a decree for managers to slash prices, in an attempt to curb rampant inflation
  • Global internet searches for the term "stock bubble" are higher than they've been at any time since the housing bubble collapsed according to Google Trends
  • Lebanon's central bank decided to proceed to print a commemorative bank note celebrating 70 years of independence from Vichy France, despite the word "independence" being spelled wrong – bank mis-spelling

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