When looking at the position of UK business investment, now at last, there is some positive news with the Office for National Statistics announcing that business investment in the UK jumped by 5.9% in the first quarter of 2025, marking the fastest pace of growth in two years. It is now 8.1% above the level in the same quarter a year ago.
According to the ONS, the sharp rise in investment from January to March helped lift overall economic growth to 0.7% in the quarter, with business spending alone contributing 0.5 percentage points. The rebound follows a 1.9% investment contraction in the final quarter of 2024 and marks the strongest investment figures since early 2023.
The unexpected surge also helped offset a drop in government expenditure, driven by lower public sector spending on health and education in the lead-up to June’s departmental budget review.
Where was the investment growth?
The ONS revealed that a large portion of the investment growth in Q1 2025 was driven by spending in the transport and aircraft sectors, which may well have been influenced by firms front-loading purchases to avoid the risk of a major hike in global tariffs. On the other hand, there was also robust growth in investment in information technology and machinery, reflecting stronger domestic demand.
Can higher investment be sustained?
The obvious risk is that global uncertainty caused by the ongoing US trade tariff discussions could impact investment spending, a possibility augmented by reduced UK consumer confidence as higher utility bills and council taxes threaten to re-ignite the cost-of-living crisis.
At present, the UK is set to benefit from its privileged position as the first nation to reach a trade agreement with the US to reduce base tariffs and avoid the punitive ‘reciprocal’ extra tariffs still faced by many countries after the US’s current 90 days suspension runs out in July. Nevertheless, the vital details still to be settled.
The British Chambers of Commerce is now predicting that business investment across the whole of 2025 is projected to be 4.8% – a significant upgrade from 0.6% in its previous forecast. However, it believes that investment will be focused in a smaller number of sectors, such as ICT, manufacturing, and financial services and will be restricted to larger companies. Its survey data consistently finds that the majority of SMEs are not increasing their investment, with tax increases acting as a main barrier.
Autumn Budget considerations from April
The positive ONS data comes amid widespread warnings from large employers and trade groups that increases in employers’ national insurance contributions and the national living wage set out in the last Autumn Statement and implemented at the start of April could dampen business sentiment and lead to cutbacks across the business models of the worst affected sectors, such as hospitality, retail and leisure. Several major retailers have already signalled potential headcount reductions.
Reducing risk in business investment
Business investment and growth are undoubtedly positives for the economy, but there are certain risks to be mindful of. A key one is overtrading, which is one of the most consistent killers of companies. To mitigate risk of overtrading, any expansion needs to be suitably funded and fully resourced, not just in financial terms, but with adequate human resources, operational capacity and suitable skills. Careful planning, strict financial discipline with contingency funds in place, regular reviewing and quickly addressing challenges when they are identified will be essential.
If you are seeking professional advice for your business, Opus is here to help. You can speak to one of the members from Opus, who can discuss options with you. We have offices nationwide and by contacting us on 0203 995 6380, you will be able to get immediate assistance from our Partner-led team.