Newspaper article The Evening Standard (London, England)

Credit for Carney as Spending Starts

Newspaper article The Evening Standard (London, England)

Credit for Carney as Spending Starts

Article excerpt

Byline: economic analysis Russell Lynch

FOR the past few years, looking for a revival in business investment has been like chasing the end of the rainbow: every time you take a few steps nearer, it gets further away.

Companies haven't been spending, and it has confounded the forecasters. Back in 2010, the Office for Budget Responsibility reckoned business investment would increase by a healthy 10.9% in 2013, accounting for nearly half the economy's growth. Instead, it shrank by 5.5% last year as consumers drove the economy forward. Compared with early 2008, business investment is 26% lower.

Corporate Britain is a net lender to the wider economy compared to an indebted household and government sector, so getting them to spend some of their cash pile has been a key priority. But for a variety of reasons "uncertainty over demand" the most often quoted in the surveys they've been sitting tight.

The banks have been lending less, and many of the larger companies accounting for about two thirds of investment have also been forced to plug pension gaps opened up by soaring gilt prices.

But maybe things are changing. Financial data provider Markit this week produced one of the most encouraging charts I've seen in a while, which suggests that firms are shelling out. Its latest manufacturing survey reveals the companies which make investment goods such as IT equipment, as well as plant and machinery have seen the strongest rise in new orders for 20 years.

Domestic orders for investment goods are rising much more quickly than export demand for such goods as well, indicating that UK companies have upped spending. There is a close relationship between Markit's index on investment orders (the yellow line in the graph) and official business investment figures.

Shift forward Markit's index by six months (as shown in the chart) and you get a pretty good guide to where business investment spending will be. January's investment orders should translate into hard investment spending in six months' time so (fingers crossed) we should be in line for better business investment spending in the first two quarters of this year. …

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