Bounce in business investment is welcome but we shouldn’t get carried away

Commenting on the GDP and business investment data published today by the Office of National Statistics, Rob Donaldson, RSM's head of corporate finance said: 

‘The provisional GDP data for Q1 looks better than one might have expected given the turmoil in Westminster over this period and when compared to other European economies. The data is noisy with growth, almost certainly being driven in part by Brexit-related stockpiling. Half of all respondents in recent BoE surveys have confirmed as much. That said growth is also supported in part by healthy consumer spending as a result of near total employment and modest wage growth. 

‘Of greater surprise is the slight uptick in business investment in the first quarter. After four consecutive quarters when business investment was in decline, a bounce is welcome. However, we probably shouldn’t get too carried away by this. Brexit-related uncertainty is still prevalent and we see anecdotal evidence of much business investment on hold, at least to some extent, until the political uncertainty lifts. That does however hold out hope of a more significant bounce back once the Flextension is finally over.

‘Looking ahead, we may have to wait until Q2 for a better indicator of the health of the wider economy. Longer term we may also see the knock-on effect from the US/China trade wars which could dampen growth prospects across Europe and in the UK. Cautious business as usual remains the order of the day.’