UPDATE: New data from the Office for National Statistics (ONS) reveals that the UK has sunk to the bottom of the G7 for total investment, with public and private investment accounting for just 18.6% of GDP in the three months leading up to September. This alarming statistic raises serious concerns about the effectiveness of Labour’s economic policies, as the nation continues to grapple with stagnating investment levels.
The report, released earlier today, highlights a troubling trend that has persisted since the 1990s. The findings are particularly damaging for Chancellor Rachel Reeves, who has pledged to inject billions into infrastructure and housing. With the private sector seemingly deterred by ongoing policy changes and tax increases, the government faces mounting pressure to restore business confidence.
In April, businesses were blindsided by a combination of an employer’s national insurance tax increase and a hike in the national minimum wage, both introduced in Reeves’ first Autumn Budget. The situation is set to worsen, with energy standing charges expected to rise significantly by April 2026, complicating investment decisions for businesses already coping with soaring costs.
Despite these setbacks, some banking giants, including JP Morgan, Barclays, Lloyds, and Goldman Sachs, recently announced new capital investments in the UK, following the government’s decision to spare banks from a tax raid. However, economists predict that the public sector will become the main engine of economic growth in the coming years, as private sector expansion remains stifled.
Capital Economics forecasts a modest 1.4% growth in 2025, which will shrink to just 1% in 2026, indicating a bleak outlook for private businesses. The Confederation of British Industry (CBI) has slightly revised its growth prediction for 2026 to 1.3% from 1%, following an additional £11 billion in state spending plans unveiled in the Budget. However, the CBI has also downgraded its forecast for business investment growth by 1.1 percentage points for the same year.
Chief economist Louise Hellem characterized the growth upgrade as “cautious optimism,” stressing that private sector growth is hampered by “underlying challenges” such as regulation and taxation.
In light of the dismal investment figures, Shadow Chancellor Sir Mel Stride emphasized the urgent need for change, stating, “Low business investment signals a lack of confidence in the future of the economy.” His remarks underscore the growing alarm among political and business leaders regarding the UK’s economic trajectory.
Responding to the ONS findings, the government asserted, “Unlike previous administrations, we are investing in our economic future, with over £120 billion more in capital investment compared to prior plans, marking the highest level of public investment in 40 years.” They also highlighted that the national wealth fund has invested nearly £4 billion, generating over £5 billion in private investment and creating almost 12,000 new jobs across the nation.
As the UK grapples with its investment crisis, all eyes will be on the government’s next moves and how they plan to instill confidence in the private sector. The implications of these developments could resonate for years to come, impacting businesses and citizens alike. Stay tuned for further updates on this critical economic story.
