Where is best to invest and what are the risks of lost investment into the UK?

Low, sluggish investment has plagued our economy in recent decades. Relative to our GDP, the UK consistently suffers from the worst total investment throughout the G7, while also ranking amongst the lowest of all 37 OECD economies in this regard.[i] Looking specifically to the private sector, businesses have been investing less and less as a proportion of their value-added since 2000 – this dropped significantly during the financial crisis and has now stagnated since 2016.[ii]

This stagnation has been a persistent feature of both public and private investment, directly harming UK workers through lower productivity, wage growth and ultimately living standards. On a wider level, lacking investment undoubtedly bears responsibility, at least in part, for our poor economic growth in recent years.

So what is driving these trends? Why are businesses choosing not to invest more in the UK, and are we losing out to other economies? Many theories and reasons have been floated to explain this, but we asked business decision-makers directly to get an answer straight from the source.

CBI Economics interviewed 43 business leaders from multinational manufacturers, building a picture of their investment decision-making processes, unpacking the key factors that influence decisions and understanding perceptions of how the UK has fared as a place to invest in recent years. While business leaders were clear that UK competitiveness in business investment has suffered heavily, they did give some cause for optimism.

Some of our key findings included:

• One-third (33%) of businesses reported that UK-specific factors have led to lost investments or divestments in the last 8 years.
• Over half (57%) of businesses expressed negative sentiment around the UK economy as a place to invest – this proportion rose to 90% in UK-owned firms.
• The long-term macroeconomic environment was the most important factor to businesses in long-term decision-making.
• Within this, businesses cited the main priorities of strong market demand produced by a thriving economy, and a healthy supply of labour and skills to tap into.

More broadly, businesses expressed a general perception that UK competitiveness is slowly drifting away, warning that government inaction could worsen this trend further.

This government action doesn’t need to be costly to be effective though. Businesses ultimately need certainty and clarity to invest, which UK policymakers could achieve without reaching into their pockets – through roadmaps, market-making legislation and general policy consistency.

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[i] Institute for Public Policy Research (2023), Now is the time to confront UK’s investment-phobia.

[ii] London School of Economics (2023), Britain can promote private investment and economic growth. Here’s how.