Business investment to return, predicts CBI

Business investment will come back on line this year, helping to rebalance the recovery, according to the latest forecast from the CBI.

The lobby group says today that firms’ capital expenditure will grow by 6.6 per cent this year, following a 3.7 per cent contraction in 2013.

The CBI expects this to be followed by an 8.3 per cent expansion in investment in 2015.

It said that corporate spending will be supported by improving confidence and continued low borrowing costs.

The CBI forecast is more bullish than that of the Treasury’s official forecaster, the Office for Budget Responsibility, which sees growth this year of 5.1 per cent.

The latest survey of chief financial officers by Deloitte showed risk appetite among big corporates hitting a six-year high in the final quarter of 2013 and uncertainty falling to a three-and-a half-year low.

Business investment has been disconcertingly weak in recent years, with the level of spending by firms still around 24 per cent below where it was before the 2008-09 recession in the third quarter.

The CBI also expects the economy’s rebalancing to be supported by a rise in exports this year, as the eurozone recovers and demand from the rest of the world grows. It thinks overseas sales will rise by 3.6 per cent in 2014 and 4.7 per cent in 2015.

“We are starting to see signs of the right kind of growth” said John Cridland, the CBI’s director-general. “In our view this is not a debt-fuelled, housing bubble-led recovery. More businesses are feeling inclined to invest in new technology and advertising. We can also expect more companies coming to market to raise finance and an uptick in merger and acquisitions activity as animal spirits return,” he added.

The CBI’s full-year forecast is for GDP to grow 2.6 per cent in 2014, an upgrade from its forecast of 2.4 per cent in November.

However, there are further signs that the consumer continues to assist the recovery.

The latest British Retail Consortium survey of retailers today points to the strongest growth in almost four year in January. Total sales were up 5.4 per cent year on year, the strongest growth since March 2010.