Business spending set to climb, says CBI

20 December 2010

20 December 2010 | Lindsay Clark

The Confederation of British Industry (CBI) expects business investment to grow by around 7 per cent in 2011.

Against a backdrop of sluggish economic recovery, the uplift in company spending could provide a boon for procurement departments.

The employers’ group also predicted business investment would continue to grow by more than 8 per cent in 2012. However, the level of spending will still be lower at the end of 2012 than it was in 2008.

“These growth rates sound quite high, but it is worth noting that business investment plummeted in 2009 by close to 20 per cent, and it will take a long time to retrieve previous levels of spend,” the CBI Economic and Business Outlook for this month said.

“As the recovery continues and uncertainty about the strength of demand fades, firms are likely to reinstate a sizeable proportion of the investment plans that had been shelved during the past couple of years, and there will also be the need for replacement investment,” it said.

The economy as a whole is expected to increase by only 0.2 per cent quarter-on-quarter in the first three months of 2011. Quarterly growth rates are expected to pick up more momentum during 2012, with the economy forecast to expand by 2.4 per cent over the year as a whole, which was “rather subdued for this stage of a recovery”, the CBI said.

Although economic activity would remain relatively restrained compared with other recoveries, there was concern about commodity prices and inflation, said Ian McCafferty, CBI chief economic adviser.

“The persistent strength of energy and commodity prices is a growing concern, as it is likely to mean that inflation does not fall back quite as sharply as many hope,” he said. “This makes it more likely that the Bank of England will need to start pulling back from record low interest rates earlier, rather than later, next year.”

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