Investment boom ‘on the horizon’

Business investment

Businesses are gearing up for a boom in hiring and investment as economic activity returns to normal, reports say.

While companies spent much of last year cutting costs, they are now taking advantage of record low interest rates and tax incentives to unleash investment to help meet rising demand.

Hiring and investment will hit their highest level in almost seven years over the coming months, according to a report by Deloitte. At the same time, expansion through acquisition has become a higher priority than at any time in the past 11 years.

In a survey of finance leaders at 107 of the country’s biggest companies, it found that more than half have already recorded a full recovery or expect to do so by the end of the year. Deloitte found that 71 per cent of respondents expected capital expenditure to increase and 76 per cent anticipated increases in hiring over the year ahead.

Rising raw material costs, labour shortages and supply chain disruptions have been holding back businesses’ ability to respond to demand and adding to costs. Companies are now investing to build capacity but they are worried that inflation will continue to rise. Finance leaders are the most worried about inflation since 2014.

Ian Stewart, chief economist at Deloitte, said: “With the economy reopening, chief finance officers’ perceptions of external uncertainty have dropped below the average of the last five years and businesses have tacked away from the defensive strategies that helped them through the downturn. The pandemic, like all major shocks, will reshape the economy and we are likely to see years of normal growth compressed into just a few months.”

Businesses are drawing confidence from the strength of the economic recovery since some restrictions were lifted in April. Although growth eased in May, the economy has rebounded strongly over the past few months and the majority of analysts have revised up their forecasts for the coming year.

According to an index by BDO, business confidence jumped last month to its highest point since 2005. The index rose for the fifth consecutive month in June, climbing by 2.74 points to 112.45 in June, while the sub-index for hiring reached a six-month high of 108.01. Any reading above 100 indicates that companies are optimistic.

Kaley Crossthwaite, of BDO, said: “Businesses are clearly looking forward to the lifting of restrictions on July 19. After a gruelling year of unpredictable change, the ending of restrictions is timely, although rising Covid-19 cases still leave an element of uncertainty.”

“Freedom day” could boost the economy by another £2.2 billion a month, according to the Centre for Economic and Business Research. The major beneficiaries will be nightclubs, theatres and music venues. The report said: “However, there are signs of slowing momentum, with card spending in the final week of June more than 10 per cent below its peak in early May.”