Business investment in uk expands at fastest pace in two years

Business investment in the United Kingdom has surged at the fastest pace in two years, defying earlier concerns that increased payroll taxes would dampen private sector expenditure. Data from the Office for National Statistics (ONS) revealed a 5.9 per cent rise in business investment between January and March. This marks a sharp rebound from the 1.9 per cent contraction recorded in the final quarter of last year.

The uptick in business spending contributed to a 2.9 per cent growth in overall investment across the UK economy during the first quarter. This, in turn, added 0.5 percentage points to the 0.7 per cent economic growth rate for the period. While government spending witnessed a decline, the strength of private sector investment helped offset this dip.

Economists were surprised by the strong figures, particularly given the warnings from large employers that higher payroll taxes and an increased national living wage might force immediate staff reductions. Sectors such as transport, aircraft, information technology, and machinery led the investment surge, reflecting growth despite global uncertainties around US tariffs.

Simon Wells, Chief European Economist at HSBC, described the data as “barnstorming” but cautioned against sustained growth, citing potential global economic pressures. He noted that the second quarter could face challenges resulting from tariff-related uncertainties, rising utility bills, and increased labour costs.

Raising private sector investment has been a key focus for the Labour government, particularly in the post-Brexit era, as the UK seeks to bolster its economy. Gabriella Dickens, G7 Economist at Axa Investment Managers, highlighted the “genuine underlying momentum” in the economy, with businesses continuing projects despite a cautious outlook.

The government has recently negotiated partial trade agreements with the US, reducing tariffs on car imports and removing levies on steel and aluminium. These early moves aim to maintain investment momentum as Labour presses for closer economic ties with the EU. Industry leaders have called for a broader “trade reset,” urging the government to eliminate export barriers, extend work visas, and agree to youth mobility programmes to drive long-term growth.