South: UK's big businesses set to invest up to £200b, says Deloitte

The UK’s biggest businesses are preparing to invest up to £200 billion in the next two years, according to new research from Deloitte.

The survey of 132 senior executives of companies with revenues in excess of £1b, found that 80% intend to invest this year, with close to 70% earmarking at least £250 million of investments to drive growth. Deloitte estimates that Britain’s biggest businesses will invest up to £90b in 2014, with an increase in 2015 to £107b.

However, the resurgence of business investment will be phased as some companies use cash for other purposes. 58% say they intend to return cash to shareholders this year and 11% will continue to focus on strengthening their balance sheets.

There are also differences in investment strategy by sector and ownership type. Healthcare, telecommunications and chemicals companies appear set to lead large-scale investment this year, with consumer businesses and financial services companies more likely to delay such investment until 2015.

Over 70% of non-listed businesses indicated that they would invest in both 2014 and 2015, compared with 26% of listed companies.

David Sproul, chief executive of Deloitte UK, said: “Over the past 12 to 18 months the steadily improving economy has led to an increase in corporate risk appetite. However, that has not yet translated into the level of investment policymakers had hoped for. In 2013, businesses invested just £3b more than they did in 2009. A well-balanced recovery requires a significant rise in corporate investment and a shift away from consumer-led growth. This investment is much needed and with the OBR also forecasting a 50% increase in capital spending over the next five years, all the signs are that it is on its way.”

Rt Hon Danny Alexander MP, chief secretary to the Treasury, said: “The Government is building a stronger economy and fairer society through our long-term plan. But the job isn’t done and it’s vital that UK businesses play their part to cement the recovery. I have been calling on businesses to up their investment since last year and this report suggests businesses are set to act. The Government has paved the way by slashing red tape and reducing corporation tax. We then went further at the Budget by cutting energy bills for business and doubling the annual investment allowance. It’s now up to business to back the UK and get investing – there’s never been a better time to do so.”

Businesses have expressed a marginal preference for pursuing organic over inorganic growth, with 56% intending to invest in the former. However, the strategy shifts significantly when it comes to investing in high-growth markets, with 66% of companies favouring M&A activity as a means to establishing a presence or scaling the business in a new market.

At present, 72% of respondents generate more than half of their revenues from within the UK. By 2017, only 57% expect this to be the case. Deloitte estimates that this 15 percentage point shift equates to almost £500b of new revenue from international markets. Despite some uncertainties about emerging markets, UK firms still see strong opportunities. China and the wider Asia-Pacific region are most attractive for large businesses, with 73% and 66% forecasting growth in those markets respectively. However, 67% of respondents continue to see steady or strong growth for their businesses in the UK, with 60% expecting likewise across the European Union.

Sproul added: “With businesses beginning to turn their attention to investing and exporting, it is positive that measures were announced in the Budget this month to encourage such activity. Britain has some catching up to do when it comes to global exports. We punch below our weight at present in certain key areas, so it is good that businesses acknowledge that growing revenues internationally is a necessity for the continued success of their own company and the UK’s prosperity more broadly. But this is far from an ‘international only’ approach. Companies see growth potential in the UK too and recognise the benefits of using the UK as a hub for controlling their expanding international businesses.”