International data shows Britain remains bottom of the G7 in total investment, despite Labor’s pledge to invest billions of pounds in government spending over the next two years.
Figures from the Organization for Economic Cooperation and Development show that total investment, which includes both public and private spending, was just 18.6 percent of GDP in the third quarter of the year. This puts the UK behind all other G7 countries, including the United States, Germany, France and Japan.
The data underscores long-term weakness in the British economy. The UK has had the lowest investment rate in the G7 in 23 of the past 31 years, a factor widely blamed for weak productivity growth and weak long-term economic performance.
In comparison, Japan recorded the highest investment rate among the G7 at 27 percent, while Germany invested around 20 percent of GDP over the same period despite a two-year recession.
Labor has made boosting investment a central plank of its economic strategy, committing to increasing public investment in infrastructure, transport and housing. Economists at PwC estimate that public investment will rise by £13 billion in 2026-27, marking the biggest two-year increase since the 2008 financial crisis.
However, there is growing concern that this increase in government spending will not be offset by the private sector. PwC chief economist Barret Kupelian warned that private investment is expected to stagnate due to weaker business confidence and slower profit growth.
“The government will focus much more on domestic growth levers, particularly the record-breaking revival of public investment,” Kupelian said. “But private investments are unlikely to respond as strongly in the short term.”
The scale of the challenge is enormous. EY estimates that up to 1,000 major investment projects will begin or be completed by 2040, with government-backed capital spending expected to reach £1.1 trillion. But even this would leave a significant funding gap.
According to EY-Parthenon, meeting Labour’s broader ambitions, including increasing defense spending to 3 percent of GDP by the end of the decade, would result in an investment deficit of £583 billion. If defense spending rises to 5 percent of GDP by 2035, the gap could widen to £817 billion, putting further strain on public finances.
Mats Persson, global head of EY-Parthenon, said the UK was facing increasing pressure from overlapping investment needs. “The government has made progress in providing capital for infrastructure, but long-term funding needs in energy, defence, health and transport are increasing rapidly,” he said.
Economists have long argued that Britain’s low levels of investment are a major drag on productivity. Business investment drives innovation and technology adoption, while public investment provides the housing and transportation networks needed to support growth.
Louise Haigh, Labour’s former transport secretary, said the problem reflected decades of short-term policy decisions. “Underinvestment has plagued the British economy for half a century,” she said. “Our five-year political cycle does not give companies the long-term certainty they need to deploy capital.”
Reform UK deputy chairman Richard Tice accused the government of creating a hostile climate for investors. He said uncertainty and tax changes had pushed capital elsewhere and claimed his party would prioritize deregulation and incentives to create wealth.
With private investment stalling and public spending under pressure, economists warn that closing the UK’s investment gap will require more than just short-term funding commitments – and sustained efforts to restore confidence across the business community.
