Investors are reluctant to supply UK businesses with cash due to national and European concerns
A report by the ICAEW suggests that UK businesses are not investing in companies due to a fear of the approaching general election and crisis in the Eurozone.
A lack of investment by UK companies has resulted in experts from the Institute of Chartered Accountants in England and Wales suggesting that economic recovery in 2015 will be slower than previously predicted. This investment reduction has been directly linked to the coming general election and problems within the Eurozone which have combined to make business investment a much riskier proposition. There are also signs that wider concerns about the role of the UK in the global economy is also causing the economic recovery to stumble.
How the new figures reflect damage to recovery
The latest ICAEW report on expectations for growth in 2015 reveals a reduced prediction of investment and trade due to concerns over the approaching election. Previously, they had predicted that the UK economy would grow by about 2.5%, in line with the 2.6% growth in 2014. They had also predicted that business investment would grow by 7.2%.
These figures have now been lowered to 2.4% for the economy and 5.2% for the business growth. The drop in the rate of growth for the economy will be particularly devastating since the 2.6% rate of 2014 was the fastest since the 2008 recession, and was much stronger than the other leading global economies. However, the drop to business investment is also severe and might indicate a severe loss of finances for some of the biggest businesses.
Why growth has been downgraded
The experts at ICAEW revealed that there were several aspects to the slump in growth after the success of the previous year. They stated that confidence in the economy has fallen, and have related it directly to businesses feeling as though they are being exposed to greater international risks.
The CE of ICAEW stated that these risks are in both the Eurozone, with fears that Greece might leave the EU and cause a collapse, and the sudden drop in business growth in China. Businesses have also expressed fears that the General Election may bring to power a government that wants to pull out of the EU.
Businesses with many links to the EU are naturally concerned about what this might mean for them.
The risks involved with the General Election may also mean that many businesses are just too nervous to invest in any companies at the moment. The likelihood of a coalition government, with a mix of political parties, is very high, and this means that businesses are concerned about such a mixed government’s policies towards business.
How business investment might be affected in 2015
The threat of Greece leaving the EU, and the problems of a coalition government in the UK, may be causing businesses to hesitate in the current climate, but it seems likely that both of these issues will be resolved by the end of summer.
What is more likely to pose a continuing threat to business investment is the sudden slump in Chinese business growth. Chinese businesses have invested heavily in the UK, and if this was to cease, investments might be lower than the predicted levels at the end of 2015.