Fact of the Week: UK Business Investment Is More Than One-Third Below Its Pre-Brexit Trend

Sources: Ben Chu, Twitter post, May 12, 2022, 5:16 PM; Office for National Statistics, “Gross Fixed Capital Formation: Business Investment” (CVM SA: £m, accessed 23 May 2022); Office for National Statistics, Gross Domestic Product (chained volume measures: Seasonally adjusted £m, accessed 23 May 2022).

Commentary: Business investment in the United Kingdom is 34.4 percent below its post-Great Financial Crisis, pre-Referendum trend (Q4 2009 to Q1 2016). In that period, U.K. business investment exhibited a growth rate of 1.4 percent per quarter. It then dropped to -0.7 percent per quarter. Furthermore, U.K. business investment was 10.62 percent of GDP in Q1 2016; that figure slid to 9.17 percent in Q4 2021.

While the COVID-19 pandemic contributed to business uncertainty and depressed business investment further, U.K. business investment tapered off following the 2016 Brexit referendum and was 21.7 percent below trend in Q1 2020. The referendum likely discouraged business investment as uncertainty increased and firms redirected funds to prepare for an unknown post-Brexit landscape.