Despite Labor's pledge to inject billions of pounds in public spending over the next two years, Britain remains lowest among the G7 in terms of overall investment, according to international data.
Data from the Organization for Economic Co-operation and Development show that total investment, including both public and private spending, was only 18.6 percent of GDP in the third quarter of the year. This leaves Britain behind all other G7 countries, including the United States, Germany, France and Japan.
The data underlines long-standing weakness in the British economy. The UK has recorded the lowest investment rates in the G7 for 23 of the last 31 years, a factor widely attributed to poor productivity growth and weak long-term economic performance.
By comparison, Japan recorded the highest investment rate among the G7 at 27 percent, while Germany, despite a two-year recession, invested nearly 20 percent of GDP over the same period.
Labor has made boosting investment a central plank of its economic strategy, and has promised to increase public capital spending on infrastructure, transport and housebuilding. Economists at PwC estimate that public investment will increase by £13 billion in 2026–27, the largest two-year increase since the 2008 financial crisis.
However, there are growing concerns that this increase in government spending will not be matched by the private sector. Barrett Kupelian, chief economist at PwC, warned that private investment is expected to stagnate due to weak business confidence and slow profit growth.
“There will be a much greater focus from the government on domestic growth levers, particularly public investment growing at a record pace,” Kupelian said. “But private investment is unlikely to respond as strongly in the near future.”
The scale of the challenge is tough. EY estimates that 1,000 major investment projects are planned to commence or complete by 2040, with government-backed capital expenditure on track to reach £1.1 trillion. Yet this will leave a significant funding gap.
According to EY-Parthenon, meeting Labour's broader ambitions, including increasing defense spending to 3 per cent of GDP by the end of the decade, would leave an investment shortfall of £583 billion. If defense spending increases to 5 percent of GDP by 2035, the gap could widen to £817 billion, putting further pressure on public finances.
Mats Persson, global leader of EY-Parthenon, said the UK was facing increasing pressure from overlapping investment demands. “The government has made progress in unlocking capital for infrastructure, but long-term funding needs in energy, defence, health and transport are growing rapidly,” he said.
Economists have long argued that Britain's low investment levels have a major impact on productivity. Business investment drives innovation and technology adoption, while public investment provides the housing and transportation networks needed to support growth.
Former Labor Transport Secretary Lewis Haigh said the problem reflected decades of short-term policymaking. “Underinvestment has plagued the UK economy for half a century,” he said. “Our five-year political cycle does not give businesses the long-term certainty they need to deploy capital.”
Richard Tice, deputy leader of Reform UK, accused the government of creating an unfavorable environment for investors. He said uncertainty and tax changes had pushed capital elsewhere and claimed his party would prioritize deregulation and incentives for wealth creation.
With private investment faltering and public spending under pressure, economists have warned that closing the UK investment gap will require more than headline funding commitments – and a sustained effort to restore confidence in the business community.
Amy Ingham
Amy is a newly qualified journalist specializing in business journalism with responsibility for news content at Business Matters, the UK's largest print and online source of current business news.