Hopes for an investment-led recovery suffered a setback with the release of figures showing companies have pared back their spending plans sharply for the coming year.
A survey by GE Capital shows that small and medium-sized enterprises (SME) have cut back their annual investment plans by more than half in the past six months. However, companies are less conservative when it comes to hiring, with SMEs signalling they are ready to create some 378,000 new jobs over the next 12 months, according to the report.
George Osborne, who presents his third Budget on Wednesday, is counting on British companies to start drawing from their £700 billion cash surplus and splashing out on new plants and premises as the Government cuts back its own capital expenditure.
John Jenkins, chief executive of GE Capital UK, said that many business leaders were willing and able to invest, but that the “shine has come off” compared with last year. Part of the reason was the impact of the euro-area crisis, but there was also executive angst about the impact of austerity measures on the economy, he added.
GE Capital’s investment figures are calculated on the basis of a biannual survey of 1,750 European business leaders, some 250 of whom are based in Britain.
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The £37 billion of investment that bosses have pencilled in for the next 12 months is 53 per cent less than they planned half a year ago, according to GE Capital, a provider of commercial finance. Almost half of those polled in the UK said the uncertain outlook for the economy had reduced their ability to spend on new equipment and facilities.
The survey also shows that British SMEs are less likely to invest than their counterparts in the big European nations. German SMEs are planning the heaviest capital expenditure over the coming year, pencilling in about £95.8 billion of investment.
Mr Osborne will tomorrow launch his credit easing scheme, which aims to unlock access to finance for SMEs.
GE Capital’s polling suggested that worries about the health of the economy were currently a bigger problem than access to finance, with only one in five citing a lack of finance as a factor holding back investment.
Mr Jenkins expressed doubts over the effectiveness of the Chancellor’s plan: “We had two or three stabs at this sort of thing in the past and it didn’t work well. I am worried that it could end up being cumbersome and bureaucratic rather than entirely helpful.”