UK businesses are reluctant to make large investments in machinery and new technology while barriers to trade with the EU remain in place and interest rates are high, according to a survey by the British Chambers of Commerce.
The business lobby group said the vast majority of respondents to its quarterly economic survey had frozen or cut investment plans while only 23% said they were considering fresh injections of cash to improve the way they operated.
In a signal that pause in business investment dating back to the Brexit vote in 2016 was still in place, 59% of the 5,000 respondents reported no change and 18% saw a decrease.
The BCC said that, over the last six years, investment had “flatlined” and even in the pre-pandemic period remained stuck in first gear. During this period, the number of firms increasing investment never reached more than 28%, the percentage recorded in the first quarter of 2018.
At the start of the pandemic, in early 2020, investment intentions dropped as low as 9%.
David Bharier, the lobby group’s head of research, said the results of the survey point to tough trading conditions for many firms as inflation, labour shortages, global trade barriers and interest rate rises continue to bite.
He said: “Manufacturers have reported a particularly tough quarter, and it will be crucial over the coming months to see how this trend plays out.”
He said uncertainty about the government’s plans for infrastructure developments and the threat of further customs checks at the EU border were also holding back investment.
“Most firms continue to report no increase to their investment intentions. This is in part a reflection of broader uncertainty, with little clarity on major long-term projects and yet more trade barriers to come with the EU,” he said.
Official figures showed a bounce in business investment in the first six months of the year, though the 9% year-on-year increase to the end of June was lifted by exceptional investment from aerospace firms in new planes and a generous tax break that ran out in April.
The survey, which took place before the Bank of England held interest rates at 5.25% last month, also found that two-fifths of UK firms (41%) now expect their prices to increase in the next three months, down from 55% in the first quarter.
The expectation among businesses that inflation will be lower than forecast earlier in the year is likely to further ease pressure on the central bank to raise rates at its next meeting in November.
