Political risk an investment 'mood killer'

All this grandstanding by politicians is messing with businesses' heads, the CBI has said.

by Rachel Savage
Last Updated: 10 Mar 2014

- Read MT’s profile of CBI president Sir Mike Rake

Political uncertainty around the 2015 general election risks putting off businesses from investing, just when they were getting back in the swing of things, the CBI has warned.

Investment will contribute positively to growth this year, rising at the fastest rate since 2007, the CBI said. However, politics could be a ‘real mood-killer’ for company decisions in the run up to the election in May 2015, CBI director general John Cridland said.

‘There is no doubt that business leaders are concerned about political uncertainty as we enter a lengthy election campaign,’ Cridland said in a statement.

Last month in Davos, CBI president and BT chairman Sir Mike Rake said businesses were ‘concerned’ about Ed Miliband’s recent crowd pleasing policy ideas, such as a 20 month energy price freeze.  Companies seem to be getting keener about the coalition at the moment too - yesterday a survey of large retailers showed three quarters thought it was doing well. However, the floods and a government proposal to break up British Gas may have put a dampener on that.

The CBI’s chief policy director Katja Hall also cited September’s Scottish independence referendum and a possible vote on EU membership in 2017 as risks for business at a press conference today.

The business lobby group said it now expects GDP growth of 2.6% this year, up from the 2.4% it predicted in November, while the forecast for 2015 was revised down 0.1% to 2.5%. And it’s not just any kind of growth – it’s ‘the right kind of growth’.

‘In our view this is not a debt-fuelled, housing bubble-led recovery - our forecast shows encouraging signs that business investment and net trade are starting to play their part,’ Cridland said.

Cridland added that he expected to see more companies raising money on the markets and an increased in mergers and acquisitions ‘as animal spirits return’. Roar.

However, while the CBI thinks investment will jump 6.6% this year after a 3.7% contraction in 2013, it pointed out levels were still 24% below their pre-crisis peak and would still be 9% short at the end of 2015. That’s a lot of ‘spare capacity’ in the economy.

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