UK Business Investment: Economists, Managers, Financiers

Main points

• UK business investment has underperformed. Research on other countries suggests that while this is not a uniquely British problem, the UK does appear to face more headwinds. Slow growth in global trade, inequalities and increased uncertainties, and concentration of investment both by firms and by institutional investors are in focus for the UK.
• Uncertainty is always detrimental to business investment, and here the decision to leave the EU is an important factor since domestic growth and access to global markets, along with available financing, were all affected. In the face of various kinds of uncertainty, research finds that UK managers and firms tip toward financial investments and/or hold higher cash buffers, both deleterious for business innovation and investment.
• The concentration of UK business investment in the largest, foreign-owned firms, together with the concentration of institutional investors, means that an assessment of the relationships between size, ownership, and management, as well as market growth and global exposure is a basic starting point for understanding the dynamics of business investment in the UK.
• The three perspectives on business investment from an economist, a manager, and a financier are importantly intertwined. With the availability of firm-level data, investor-level data, and manager-level assessments, research can combine the three perspectives to get a view of what matters most for UK business investment.

UK business investment has underperformed, but research on other countries also point to a capital deepening problem. Slow global demand growth, reduced competitive pressures, higher uncertainty of various types, underexploited agglomeration and network externalities, inequalities of place, rising financialization, earnings management, and increased importance of institutional investors are variously cited as culprits holding back business investment. Are some of these headwinds more prevalent in the UK?