Increasing UK infrastructure spending by 1% of GDP would create more than 200,000 new jobs in the same year and help narrow a £60bn (€75bn) investment deficit.
In its ‘Building For Growth’ report, Standard & Poor’s said each additional £1 that the UK spent on infrastructure in one year would increase the country’s GDP by £1.90 over a three-year period.
The UK’s investment in infrastructure, the report said, has lagged behind several other countries in the Organisation for Economic Cooperation and Development (OECD).
“This has put the country’s infrastructure under severe strain,” the report said, citing the World Economic Forum’s 2014-15 Global Competitiveness Report’s acknowledgement of inadequate supply of infrastructure as an “obstacle to doing business” in the UK.
Insufficient investment has, the report said, been a key factor in explaining weak productivity performance in the UK, with output per hour last year falling below the average for major G7 industrialised economies.
Standard & Poor’s said the “multiplier effect” meant each pound spent on infrastructure could translate into economic growth.
For the UK, the company estimates a multiplier of 1.9.
Infrastructure investment is tipped to increase over the next decade, with significant opportunities for private capital investment in the sector.
Higher infrastructure investments could lift growth further and bolster the UK’s competitiveness.
“In our view, this could boost the country’s economic growth, both in the short term and over time,” the report said.
Standard & Poor’s said the need for greater investment in UK infrastructure raised questions about finance, when government debt was rising and the country’s budgetary deficit remained significant.
“The government has implemented a deficit-reduction programme, and this is likely to constrain its ability to finance new infrastructure projects,” the report said, with the government expecting to fund only one-quarter of its infrastructure pipeline publicly.
“There will, therefore, be significant opportunities for the private sector,” Standard & Poor’s said.
Macroeconomic factors, the report added, support an increase in private investment in infrastructure, with real interest rates at historical lows and employment in UK construction “well below peak levels”.