UK investment lags behind G7 peers

Britain remains at the bottom of the G7 for overall investment, despite Labour’s pledge to inject billions into public spending over the next two years, according to international data.

Figures from the Organisation for Economic Co-operation and Development show that total investment, combining both public and private spending, stood at just 18.6% of GDP in the third quarter. This leaves the UK trailing all other G7 nations, including the United States, Germany, France, and Japan.

The data highlights a persistent weakness in the British economy. The UK has recorded the lowest investment rate in the G7 in 23 of the past 31 years, which is widely blamed for poor productivity growth and weak long-term economic performance. Japan, by comparison, recorded the highest investment rate among the G7 at 27%, while Germany, despite being in a two-year recession, invested around 20% of GDP over the same period.

Labour has made boosting investment a central part of its economic strategy, pledging to increase public capital spending on infrastructure, transport, and housebuilding. Economists at PwC estimate that public investment will rise by £13 billion in 2026–27, marking the largest two-year increase since the 2008 financial crisis.

However, there are concerns that this surge in government spending will not be matched by the private sector. PwC’s chief economist, Barret Kupelian, warned that private investment is expected to stagnate due to weaker business confidence and slower profit growth.

Kupelian stated, “There will be a much stronger focus on domestic growth levers from the government, particularly public investment picking up at a record pace. But private investment is unlikely to respond as strongly in the near term.”

The scale of the challenge is significant. EY estimates that up to 1,000 major investment projects are planned to start or complete by 2040, with government-backed capital spending on track to reach £1.1 trillion. Yet, even this would leave a significant funding gap.

According to EY-Parthenon, meeting Labour’s wider ambitions, including defence spending rising to 3% of GDP by the end of the decade, would leave an investment shortfall of £583 billion. If defence spending increases to 5% of GDP by 2035, the gap could widen to £817 billion, placing further strain on public finances. Mats Persson, global leader of EY-Parthenon, said the UK faces mounting pressure from overlapping investment demands. “The government has made progress in unlocking capital for infrastructure, but the long-term funding requirements across energy, defence, health, and transport are rising rapidly,” he said.

Economists have long argued that Britain’s low investment levels are a major drag on productivity. Business investment drives innovation and technology adoption, while public investment provides the housing and transport networks needed to support growth.

Louise Haigh, the former Labour transport secretary, said the problem reflected decades of short-term policymaking. “Underinvestment has plagued the UK economy for half a century,” she said. “Our five-year political cycle doesn’t give businesses the long-term certainty they need to commit capital.”