CBI demands infrastructure spending to drive growth

THE CBI yesterday called for a major investment in infrastructure projects such as road and rail links to kickstart the UK’s struggling economy and avoid losing ground to foreign competitors.

The employers’ group said an accelerated capital investment programme across transport, digital communications, waste and energy projects would help tackle the UK’s ageing infrastructure problem and provide a much-needed boost to the supply chain.

It said a major survey of businesses had shown that most rate the UK’s infrastructure worse than other EU countries for quality, value for money and reliability and pointed out that a global competitiveness report last year placed the UK at 33rd for quality of infrastructure, alongside Slovenia but behind countries such as Tunisia and Cyprus.

John Cridland, the CBI’s director general, said action was need to help secure critical business investment and urged the government to raise its capital investment to pre-recession levels as soon as possible.

“This survey paints a disturbing picture,” he said. “Firms across the country say that the infrastructure they depend on every working day is just not good enough and is stifling growth.

“High-quality infrastructure swings boardroom decisions when companies are looking where to invest, and pays dividends in terms of future jobs and growth.”

The CBI’s call for action came as the Bank of England kept interest rates at a record 0.5 per cent but stopped short of increasing its £200 billion quantitative easing (QE) programme.

Concerns over growth prospects were fuelled by warnings from both the European Central Bank (ECB) and the Organisation for Economic Co-operation and Development (OECD) over slower-than-expected recovery in Europe and the rest of the world.

The British Chambers of Commerce (BCC), which recently downgraded the UK’s growth prospects, said the Bank of England’s rate-setting monetary policy committee needed to act to boost business confidence.

Chief economist David Kern said: “The MPC must keep interest rates as low as possible for as long as possible, and will have to start thinking about an early injection of additional quantitative easing.”

Graeme Leach, chief economist at the Institute of Directors, also said an increase in QE was needed as the UK continued to ”sail close to a double dip”.

Fears that the UK is facing a double-dip recession have fuelled expectations that the MPC will be forced to launch a second round of quantitative easing. However, such a move would be a high-risk strategy because it could fuel inflation – well above target at 4.4 per cent – and put more pressure on household budgets.

Soft manufacturing growth, a contraction in the powerhouse services sector and increased global uncertainty – reflected in recent stock market turmoil – have prompted a raft of forecasters to slash economic predictions.

There have been several predictions of a rise in interest rates this year which have failed to come about as economic woes have continued to mount. Market analyst Howard Archer of IHS Global Insight said: “Any rate hike is disappearing over the horizon, and we do not expect a move before 2013.”

The ECB’s unanimous decision to hold eurozone interest rates at 1.5 per cent yesterday was also seen as a sign that a rate rise was now off the agenda due to markedly weakened economic activity and growth prospects. Only last month the ECB said that another interest rate hike may be warranted before the end of the year.