Company investment levels will take years to recover

Investment by British companies will not recover to its pre-crisis levels until 2015, ensuring several more years of weak growth, according to a respected economic forecaster.

The Ernst & Young ITEM Club warns in a report today that on-going uncertainty over the eurozone crisis and the Coalition's austerity will continue to hold down company spending over the coming years.

The forecaster expects investment to grow by just 2.3 per cent this year and 3.9 per cent in 2013, before picking up to 8 per cent between 2014 and 2016. That will mean the overall level of investment will not attain its 2007 level until 2015.

Investment has been much weaker in the UK than other advanced economies. The ITEM Club said that the UK had performed worse than the US because of austerity and a reliance on eurozone export markets. Germany had performed better because of its exporters' strength in emerging markets.

The forecast warns that subdued investment would damage the long-term capacity of the UK economy to grow. "A lengthy period of under-investment will… reduce the pace of innovation, which will damage the supply side of the economy and reduce its long-term productive potential" it said.

The report also argues that weak aggregate demand is the main cause for low investment as most is done by large companies, which are not reliant on bank loans for borrowing.