BoE's McCafferty says 'lagging' investment recovery ready to start

Ian McCafferty, an external member of the Bank of England's monetary policy committee, told an audience at the Nottingham Business School this evening that the UK has "staged a remarkable upturn over the past year" – and warned observers not to be alarmed at business investment growth lagging the consumer and housing sectors.

Some commentators, he said, worry that "we are seeing the ‘wrong sort' of growth" and that the fact business investment has not yet picked up "represents a major fault in the recovery process".

McCafferty said it is a "misconception that business investment drives economic recoveries, that it leads the economic cycle". Rather, he said, its rightful place in the recovery "is as a lagging, or late cycle, contributor to growth".

However, "the conditions needed for a recovery in business investment are finally falling in place", he said. "Confidence and certainty about the economic outlook and consumer demand have improved, as has access to internal and external sources of finance. This is laying the ground for businesses to start investing to replace obsolete capital, increase existing capacity and keep up with competitors."