Britain remains stuck at the bottom of the G7 for overall investment, despite Labour’s pledge to inject billions of pounds 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 per cent of GDP in the third quarter of the year. That leaves the UK trailing all other G7 nations, including the United States, Germany, France and Japan.
The data underlines a long-running weakness in the British economy. The UK has recorded the lowest investment rate in the G7 in 23 of the past 31 years, a factor widely blamed for poor productivity growth and weak long-term economic performance.
By comparison, Japan recorded the highest investment rate among the G7 at 27 per cent, while Germany, despite being in a two-year recession, invested around 20 per cent of GDP over the same period.
Labour has made boosting investment a central plank 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 growing 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.
“There will be a much stronger focus on domestic growth levers from the government, particularly public investment picking up at a record pace,” Kupelian said. “But private investment is unlikely to respond as strongly in the near term.”
The scale of the challenge is stark. 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 per cent of GDP by the end of the decade, would leave an investment shortfall of £583 billion. If defence spending increases to 5 per cent of GDP by 2035, the gap could widen to £817 billion, placing further strain on the 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.”
Reform UK’s deputy leader, 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 prioritise deregulation and incentives for wealth creation.
With private investment faltering and public spending under pressure, economists warn that closing Britain’s investment gap will require more than headline funding commitments — and a sustained effort to restore confidence across the business community.
