Writtem by Kunal Sawhney, CEO, Kalkine Media
In the last quarter(Q4) of 2021 (October to December), business investment in the UK has gone up by 0.9%, according to the latest figures released by the Office for National Statistics (ONS). However, this was 0.8% lower than the business investment in Q4 2020. Both business investment and gross fixed capital formation (GFCF) across the UK economy have gone up in Q4 2021, but the levels of growth have been different, with GFCF growing by 2.2% as compared to the 0.9% growth in business investment. GFCF was 2.3% more than what it was in Q4 2020. During the pandemic phase, this divergence between the investment patterns of businesses and the government has been widely observed.
Transport equipment the biggest contributor to growth
There was a 0.7% decline in the UK’s business investment from 2020 to 2021. However, positive contributions towards the growth in business investment were made by transport equipment and dwellings. Even though GFCF was 4.7% less than the pre-pandemic 2019 levels, it went up by 5.3% from 2020 to 2021 due to these positive contributions.
The business investment received a positive contribution from transport equipment, which has demonstrated the biggest periodic growth since Q3 2020, standing at 60.2% in Q4 2021. This growth has been witnessed after 2021’s annual reduction of 20.4% for transport equipment. The low investment in transport equipment has been a major concern lately due to the ongoing semiconductor shortage being observed across the globe. Some transport equipment like aircraft and ships have very high value, which leads to high volatility in the transport investment.
The second major contributor to the growth in business investment was dwellings, which grew by 5.7% in Q4 2021. The 2.2% growth in GFCF was mainly due to the positive contributions made by dwellings, transport, government, and intellectual property products (IPP). From 2020 to 2021, there was an 11.9% increase in government investment, which marks the highest such increase since 2008. Also, as compared to the 2019 pre-pandemic levels, there has been a 14.8% increase in government investment.
All the other assets reported negative contributions to business investment growth in Q4 2021. Transfer costs went down by 5.6% in Q4 2021, negatively impacting the business investment growth. After the stamp duty holiday ended in Q3 2021, transfer costs fell in Q4, pulling the GFCF down. The most significant downward contribution to the GFCF was in fact made by other buildings and structures, which fell by 0.7% in Q4 2021. However, these negative contributions were countered by the positive contributions made by transport equipment and dwellings, as mentioned above.
Survey displays diminishing uncertainty
The survey not only gives quantitative but qualitative data. As per the survey comments in Q4 2021, the level of uncertainty has been declining as compared to the Q2 2019 and 2018 levels, as uncertainty was mentioned in only 20% of the comments. Transportation, manufacturing, and storage industries had the highest levels of uncertainty on an industrial basis in Q4 2021. Different sectors of the economy have shown different levels of resilience in tackling the pandemic, and it is evident that there is industrial disparity as well as the disparity between business investment and GFCF in the UK economy.