The UK invests too little. This is now widely agreed. Naturally, this has led to a discussion of how to induce more investment. Yet how would the extra investment be funded by a country that is even more strikingly short of savings than it is of investment?According to IMF data, gross investment averaged a mere 17.1 per cent of UK gross domestic product from 2010 to 2022. This was lower than Italy’s 18.6 per cent, and the US’s 20.6 per cent. It was even further behind Germany’s 21.1 per cent and France’s 23.3 per cent. Korea’s 31.4 per cent seems from a different planet. The UK unquestionably lags behind on investment.
Jonathan Haskel, a member of the Bank of England’s Monetary Policy Committee, also noted in a recent interview that the growth in real investment has lagged well behind that in France, Germany and the US since the Brexit referendum. Haskel estimates the productivity penalty from this post-Brexit investment slump at about 1.3 per cent of GDP, some £1,000 per household. Yet the UK’s share of investment in GDP was consistently lower than in peer countries well before the referendum. This is a chronic weakness. The fake pre-2008 productivity boom in financial services masked this longstanding problem.
It is essential, then, to raise public and private investment if the country is to attain faster growth. This will require a higher share of investment in GDP than its historically low levels. But investment is financed by savings. The striking fact about UK investment is that it is also heavily dependent on foreign savings. That is because its savings are even weaker than investment. This, too, is a chronic condition, not a recent one.