UK Economy - Why low business investment matters

A recent chart in the Financial Times showed UK business investment staying low in real terms and lagging well behind the trend growth from 2009 through to 2016.

Investment is spending on new capital goods. Examples include new machinery and buildings, hardware and software.

• Weak investment means that businesses are working with an older capital stock
• Older capital tends to depreciate more quickly and can break down / slowdown
• Low investment can then hit the growth of labour productivity / efficiency
• Low investment limits the productive capacity of UK export businesses
• The effect is slower growth both through weaker aggregate demand and the impact on long run aggregate supply