UK Investment Lags Behind Peers, Hitting Political Nerve

The Office for National Statistics (ONS) has released new data showing that the UK had the lowest total public and private investment among the G7 major economies in the three months leading up to September 2025, at only 18.6% of GDP. Chancellor Rachel Reeves and the Labour government are under a lot of political pressure because this trend of poor performance has been going on for decades.

The data shows that private investment is still very weak, which is likely due to businesses’ ongoing worries about policy uncertainty, rising taxes, and rising costs. Critics say this goes against the government’s repeated promises to increase spending on infrastructure and boost long-term economic growth.

Source: ONS UK

Private Sector Confidence Eroded by Policy Shifts

Since Labour took power, a number of changes to the economy have “spooked” private sector investment, according to economists and business leaders. In April, the government raised the national minimum wage and the amount that employers had to pay in national insurance. These changes made it more expensive for many businesses to hire people and made them less willing to invest.

In April 2026, the living wage will go up again, which will put more pressure on wage costs. Planned hikes in energy standing charges will also hurt business margins, making it even harder to make investment decisions.

Mixed Signals From the Financial Sector

After the Chancellor’s November Budget, there was some good news: several big banks, such as JP Morgan, Barclays, Lloyds, and Goldman Sachs, said they would put more money into their UK operations. Officials said that the planned tax raid on the banking sector didn’t happen, which may have helped get these promises.

Still, experts say that just investing in financial services is unlikely to change the overall trend unless more industries become more confident.

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Public Sector Expected to Drive Growth

Many economists think that the public sector will be the main driver of economic growth in the near future because private investment is slowing down.

• Capital Economics says that UK GDP will grow by 1.4% in 2025 and then slow to 1.0% in 2026. They say that public spending is the main reason for this growth.
• After the budget announced an extra £11 billion in state spending plans, the Confederation of British Industry (CBI) also raised its growth forecast for 2026 to 1.3%.

Louise Hellem, the chief economist at CBI, said, “This upgrade should be seen as cautious optimism rather than reason for celebration,” because the private sector is still dealing with problems caused by regulations, taxes, and energy costs.

Political Reactions: Alarm Bells in Westminster

People in the opposition have jumped on the bad investment numbers. Sir Mel Stride, the Shadow Chancellor, told The Times that the numbers “should be ringing alarm bells in Downing Street.” He went on to say that “low business investment means that people don’t trust the economy’s future.”

Many business groups agree with this and say that the UK could fall even further behind its main trading partners if it doesn’t come up with a clearer, more consistent long-term plan to support investment.

Government Pushes Back on Criticism

The government defended its record after the ONS report came out. The government said that public investment plans now include more than £120 billion more in capital investment than they did before. This is the most public investment in 40 years.

The statement went on to say that the new fiscal rules let the UK put investment ahead of private sector activity. It also talked about the national wealth fund, which has invested almost £4 billion, leveraged more than £5 billion in private investment, and helped create 12,000 jobs.

What This Means for the UK Economy

The most recent investment numbers show that the UK economy has a bigger structural problem.

• Weak private investment keeps productivity gains and long-term growth potential down.
• In the short term, public spending should make up for it, but it might not completely make up for private sector caution.
• Costs are going up for employers, from wages to energy, which makes things even harder, especially for small and medium-sized businesses.

Economists say that to get more investment, the government will need more than just money. It will also need stable policies, clearer long-term incentives, and targeted public spending that rebuilds business confidence.

UK Investment Lags Despite Government Spending Push

The current government says it is putting more money into public projects than previous ones and creating jobs, but the fact that the G7 is still behind in investment raises questions about how the private sector feels and the UK’s overall growth path. Policymakers still have the job of making sure that investment, not just spending, drives long-term economic growth, even though productivity is low and businesses are being careful with their money.