UK business investment hit by pressure for shareholder returns: BoE

[LONDON] Eight of every 10 publicly listed companies in Britain believe that the pressure to deliver short-term returns to shareholders has been an obstacle to their ability to invest, the Bank of England said on Wednesday.

In a survey into the country's weak levels of business investment, the BoE also said one third of companies felt that they had not pumped enough money into their own operations in recent years.

The low level of business investment in Britain is widely considered to be a factor behind the country's poor productivity growth, which lags that of most other rich countries.

The government wants to tackle the productivity problem as it tries to prepare the economy for the challenge of Britain leaving the European Union.

The BoE said business investment in Britain has been growing by an annual rate of only 1.5 per cent in recent years, half the rate of the 40 years before the financial crisis of 2007-09.

Three-quarters of 1,220 firms which took part in the BoE's survey ranked investment behind distribution to shareholders and investment in financial assets when they decided how to use their internally generated funds.

BoE Deputy Governor Jon Cunliffe said business investment was likely to remain very weak in the near term as the country prepared to leave the EU before picking up later. "Ultimately, the outlook for business investment, like the outlook for the economy more generally over the forecast period, depends largely on how households and businesses react to Brexit and on the process that accompanies it," he said in a speech.

A continued lack of access to finance for some smaller firms, as well as a failure of businesses to lower their target rate of return for approving new investment in response to lower borrowing costs, could be to blame, Mr Cunliffe said.

REUTERS