January 12, 2018 / 10:21 AM / a year ago

Trio of surveys hint at UK investment letdown

LONDON (Reuters) - Prospects that business investment in Britain will strengthen this year have been dealt an early blow by three surveys, none of which signaled improvement.

FILE PHOTO: Workers are seen in the Canary Wharf financial district in London, Britain, November 11, 2013. REUTERS/Eddie Keogh/File Photo

The surveys of lenders and businesses may disappoint Bank of England officials who expect the recovering global economy will lead to a modest strengthening of internal investment in 2018, even as the country heads for its exit from the European Union.

BoE Governor Mark Carney may not be too surprised, however. He has already said growth in business investment has not been as strong as it would normally be during a global upswing, an example of the economy’s reduced “speed limit” from Brexit.

The surveys in the past week reinforced that message.

Thursday’s BoE Credit Conditions Survey showed lenders reported a hefty decrease in capital investment as a driver of demand for business loans during the fourth quarter.

Aside from the period immediately after the 2016 decision by voters to leave the European Union, it marked the sharpest fall in this measure in nearly six years.

This BoE gauge echoed the results from a Deloitte survey of chief financial officers (CFOs) in large British companies, published on Monday.

The CFOs’ expectations for capital investment across the British corporate sector cooled during the fourth quarter, remaining well below pre-Brexit vote levels.

And finally, the British Chambers of Commerce’s Quarterly Economic Survey - the largest non-official survey of businesses - showed no pick-up in investment intentions across services or manufacturing companies.

Joanna Davies, an economist with Fathom Consulting, said the surveys gave weight to her view that investment is unlikely to compensate for a continued squeeze in consumer spending, with inflation set to fall only slowly from near six-year highs struck recently.

Nor are exports likely to provide a large boost to economic growth, despite the pound’s sharp depreciation after the Brexit vote, she added.

“I can’t help but feel that the expected offset from weak sterling and the global upturn that we’re experiencing elsewhere is being over-egged,” she said. Fathom is the only forecaster among more than 30 in a Reuters poll published last month to predict a recession this year. [ECILT/GB]

In November the BoE said it expected business investment to expand by 2.75 percent in 2018, compared with around 2.5 percent last year. Investment growth between 2010 to 2015 averaged almost 5 percent a year.

The Office for Budget Responsibility is more pessimistic than the BoE, predicting business investment growth of 2.3 percent this year, down from 2.5 percent in 2017.

Reporting by Andy Bruce Editing by Jeremy Gaunt

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