# The investment boom the OBR and the Bank of England said wouldn’t happen

_The OBR forecast that business investment would fall 0.9% this year, and the Bank of England 1.5%. It is up 5.2% on a year ago. Burnham’s theory of growth, a hawk on the MPC, and institutions that never admit a mistake._

Neil Woodford · 8 October 2026 · 9 min read

![Banner showing Lord deliver us from stupidity!](https://cdn.sanity.io/images/v3acfbvo/production/b9175b70d2c5f4e68204dd1cf6368553432da102-1536x1024.png?w=1600&fit=max&auto=format)

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Although I have been consistently more optimistic about the UK economy over the last few years than the consensus, the OBR and the Bank of England, and been more right than wrong despite the unforecastable conflict in the Persian Gulf, it is sometimes quite hard to retain an upbeat demeanour given the dreadful quality of the institutions that govern us all. This week in particular is one that really taxed the optimist in me as I read the economically illiterate nonsense emanating from the Labour Party conference, and the pseudo-intellectual ramblings of a member of the MPC. But the prize this week has to go to the OBR (and the Bank of England for that matter), which has excelled itself once again following the publication of UK economic data which shines another very bright light on the OBR’s inability to get fundamentally important forecasts anywhere near right.

The key question I challenge myself with regularly is: does this institutional incompetence matter enough that it will derail the nation’s economy and its growth trajectory? Consistently my answer is no, but common sense suggests that if the economy were blessed with higher-quality leaders in our key institutions, the outcome would be so much better for us all. In my imaginary world, where those that govern us are held to the standards I was always encouraged to maintain, you would hope that these institutions ask themselves key questions like:

1. Is this true or just easy to believe – the illusory truth effect? _(Neil in the margin: The tendency to believe a claim because we have heard it often, not because anyone has shown it to be true. Repetition feels like evidence. It isn’t.)_

2. Look for evidence – data and facts – not just the warm glow of agreement from sycophants.

3. Accept being wrong, acknowledge it and learn from it.

The unfortunate reality is that our public institutions are riven with arrogance and a sense of superiority that blinds them to their frequent errors, which all too often are never acknowledged, and so the opportunity to learn from them is missed every time. This is the sort of attitude that top sports coaches around the world, in all sorts of different disciplines, do not tolerate and the best corporate captains try to guard against in their colleagues. It seems that once you’re a leader in public service these sorts of life lessons do not apply.

This note does not set out to depress its readers; its purpose is to highlight examples of where these establishment institutions are continuing to get it wrong, and to make the case for healthy scepticism, even vigilance, especially when the media unquestioningly regurgitates this institutional garbage. More often than not, the reality is not anywhere near as bad as the Jeremiahs would have us believe.

## Burnham’s theory of growth

Whilst I am tempted to spend quite a lot of time on the nonsense that emerged from the Labour Party conference last week, I will resist the temptation, but I did want to highlight a couple of things. The first is [the Prime Minister’s speech](https://labour.org.uk/updates/stories/andy-burnhams-speech-to-labour-party-conference-2026/), which for me was both frighteningly Orwellian in its attempt to rewrite the last fifty-five years of economic history, and particularly that of the 1970s, and egocentric in its focus on issues that appear to be personally important to the Prime Minister but bordering on utterly irrelevant to the electorate.

But it was his strange obsession with devolution and state control of “the basics” as the solution for the UK’s growth challenge that I found most ridiculous. Seemingly emboldened by the success of Manchesterism, it appears Mr Burnham is now convinced that he knows the answers to the economic challenges of the 21st century. But a closer examination of the facts suggests that it was substantial UAE and Chinese inward investment in Manchester, driven initially by Sheikh Mansour and Abu Dhabi United Group’s [£200mn acquisition of Manchester City Football Club](https://www.theguardian.com/football/2008/sep/02/manchestercity.premierleague) in 2008, that was the key to the city’s economic transformation. Over the last 18 years these overseas investors have pumped billions into all sorts of [real estate](https://www.gov.uk/government/news/government-welcomes-first-phase-of-new-1-billion-manchester-housing-initiative), [airport](https://www.gov.uk/government/news/joint-british-chinese-partners-to-construct-new-800-million-manchester-airport-city), regeneration and infrastructure investments in the city, facilitated by close cooperation with the City Council, which provided land and development rights. Regardless of who owned what and the lack of transparency over the relationship between the Council and these investment groups, the facts are that foreign inward investment has delivered Manchester’s revival, not some magic economic pixie dust emanating from the mayor’s office. _(Neil in the margin: The name Mr Burnham’s allies give to his Greater Manchester model: devolved powers, an elected mayor and public control of local services such as the buses.)_

In his speech Mr Burnham talked about “a theory of growth” but provided no details beyond the idea that the state should have “more control of the basics” (whatever that means) and, secondly, that power must be devolved to the regions to unleash their economic potential. All of this of course flies in the face of precedent. Wherever the state is in control in the UK it’s clear that inefficiency and bureaucracy take over, and this is reflected in the woeful productivity performance of the public sector. According to a [recent EY study](https://www.ey.com/en_uk/newsroom/2025/08/public-sector-productivity-gap-costs-uk-economy), the shortfall in public-sector productivity costs the UK economy about £80bn a year now, or around 3% of GDP, but this loss of output could reach £170bn annually by 2030, or nearly 5% of GDP in that year.

**£80bn** — The annual cost to the UK economy of the public-sector productivity shortfall, according to EY

The evidence on devolution, as I have highlighted in [a couple](https://www.noisecancelling.co/read/governments-don-t-create-growth) of [NC pieces](https://www.noisecancelling.co/read/the-new-chancellors-misdiagnosis) recently, is at least as flimsy. Despite [considerable extra public spending per head](https://www.gov.uk/government/statistics/public-expenditure-statistical-analyses-2026) in Scotland, Northern Ireland and Wales (respectively 15%, 19% and 12% above the UK average in 2024–25, with England commensurately 3% below), the GDP per capita gap with England has not closed since devolution was implemented in the 1990s.

_Neil on twenty-five years of devolution evidence:_ [The new Chancellor’s misdiagnosis](https://www.noisecancelling.co/read/the-new-chancellors-misdiagnosis) — John Healey's first major speech as Chancellor, delivered in a Coventry factory weeks before his budget, was a torrent of platitudes rather than an accurate diagnosis of what ails the economy.

So, the reality is that Manchester’s revival may have been facilitated by City Council consents but was financed by investors from the UAE and China, UK public-sector productivity is woeful and apparently deteriorating, and devolution has signally failed to deliver for the people of Scotland, Northern Ireland and Wales despite significant dollops of extra public spending in these regions. So, aside from all this, it looks like Mr Burnham’s “theory of growth” is a real winner.

## Two views from the MPC

The second example of institutional arrogance that got under my skin was [a speech given by one of the hawks on the MPC, Catherine Mann](https://www.bankofengland.co.uk/speech/2026/october/catherine-mann-nomura-investor-conference), at a conference held by Nomura. The speech is a difficult read, even for someone with some experience of wading through academic economic papers. On this occasion the author attempts to explain what has happened in financial markets, and by implication her voting behaviour on the committee, with all sorts of impenetrable theoretical but unmeasurable nonsense, including inflation expectations, and term and risk premia which she acknowledges are “unobservable” and so rely on a “suite of models to estimate them”. I won’t critique the speech here, that would be very boring, but suffice to say that her analysis invests way too much importance in the mad ramblings of financial market expectations, especially in relation to interest rates. It also fails to mention that [her warnings earlier in the year](https://www.bankofengland.co.uk/speech/2026/july/catherine-l-mann-fireside-chat-at-the-natixis-cib-conference-on-private-debt) about second-round effects from the original energy price spike were wrong. Indeed, she doubles down on these warnings whilst completely failing to explain why her original analysis was wrong. In my humble opinion, this is a good example of Einsteinian madness – doing the same thing over and over again but expecting a different result. _(Neil in the margin: The extra return investors demand for holding a long-dated bond rather than rolling over short ones, and for bearing risk more generally. Neither can be seen directly; both are estimated from models, which is rather my point.)_ _(Neil in the margin: When a price shock such as energy feeds through into wages and other prices, so a one-off jump in the price level turns into persistent inflation. The hawks fear it; so far the data hasn’t shown it.)_

Much more reassuring were [comments from another MPC member](https://www.bankofengland.co.uk/speech/2026/september/searching-for-signposts-speech-by-alan-taylor) released at roughly the same time. In contrast to Mann’s theoretical doctrine, Alan Taylor, who is also an academic economist but clearly more pragmatic, [said that the case for raising rates will remain weak](https://finance.yahoo.com/economy/policy/articles/bank-englands-taylor-says-case-154208376.html) until high energy prices translate into clearer signs of inflation spreading across the broader economy – the second-round effects. He also said that evidence for significant second-round effects “remains scant at present”.

The extract I really liked was the following:

> The case for further rate increases is not compelling to me unless energy prices remain high for an extended period and also generate clearer signals of a transmission into broader inflation persistence.
>
> — Alan Taylor, Monetary Policy Committee · NIESR Dow Lecture, 29 September 2026

I could not agree more.

## The OBR’s business investment miss

Finally, to the OBR, the institution that holds so much power over the economy and the government, but which appears incapable of accurately forecasting some of the most fundamentally important and basic aspects of it. Despite these repeated failures, it is relied upon to provide long-term forecasts which frame government fiscal policy decisions without question, something which Liz Truss was brave enough to challenge but which no one has attempted to grapple with since. I have written many times about its [wayward growth forecasts](https://www.noisecancelling.co/read/clean-bowled-again) and more recently about its [ill-timed downgrade to the UK’s productivity growth forecast](https://www.noisecancelling.co/read/the-great-uk-productivity-myth), but on this occasion it is its forecasts for business investment I wanted to focus on.

[Back in March](https://obr.uk/efo/economic-and-fiscal-outlook-march-2026/), the OBR, amongst other things, decided that the outlook for business investment in the UK in 2026 was pretty bleak. Apart from its downbeat overall economic forecast of 1.1% growth, which I said at the time was too bearish, it said that business investment, the largest single element of overall fixed investment, which includes central government investment and investment in private dwellings, would fall by 0.9% in 2026, and that a low rate of return on capital combined with an elevated cost of capital would push it down as a share of GDP. (Interestingly, the OBR describes its forecasts as [combining sophisticated economic models with expert judgement](https://obr.uk/docs/dlm_uploads/Forecasting-the-economy.pdf).) _(Neil in the margin: Spending by companies on buildings, machinery, vehicles, software and research. It excludes government investment and housebuilding, which make up the rest of total fixed investment.)_

As it turns out, this was somewhat wide of the mark given what’s happened in the first six months of the year. Instead of falling, [business investment as measured over the four quarters to the end of Q2 2026 is up 5.2%](https://www.ons.gov.uk/economy/grossdomesticproductgdp/bulletins/quarterlynationalaccounts/apriltojune2026), reflecting some of the things I’ve been talking about, including businesses responding to the elevated costs of employing people following Rachel Reeves’s first two budgets, and investment in AI technologies. As a result, business investment in the UK is approaching a thirty-year high as a % of GDP (see below).

![Business investment is back above 11% of GDP](https://r4at4qm6kmohrtvq.public.blob.vercel-storage.com/charts/chart-lord-deliver-business-investment-gdp-f883d48f7736-light.png)

_Business investment was 11.2% of GDP in the second quarter. In the last thirty years only 2016, and one quarter in 2005 distorted by a British Nuclear Fuels accounting effect, saw a higher share._

This is no trivial matter. Business investment, as the chart shows, is now 11.2% of GDP and is the lion’s share of total investment spending, which, as the chart below shows, is approaching a 65-year high – hardly the sign of a depressed economy grappling with a high cost of capital and low returns.

![Total investment is at its highest share of GDP since 1989](https://r4at4qm6kmohrtvq.public.blob.vercel-storage.com/charts/chart-lord-deliver-total-investment-gdp-0ed6f6f54795-light.png)

_Only the late 1960s, the early 1970s and the 1989 boom saw a higher share, and manufacturing was a much bigger part of the economy then._

It’s worth bearing in mind that in the early 1970s and in the late 1980s manufacturing was a much bigger proportion of the economy than it is now, which I think puts additional context around this pick-up over the last three or four years.

But the important point here is how could the OBR, given its expert judgement and sophisticated models, get this so wrong? If I were overseeing this institution, I would be asking some pretty searching questions about its failure to get anywhere close to the right numbers, starting with: is this a sophisticated model failure or a failure of expert judgement?

Unfortunately, I don’t expect anyone from the OBR will be fessing up to any failures about this or any other forecasting error. It is an organisation which in effect answers only to itself (the Budget Responsibility Committee) and, other than the fuss over the [premature data disclosures in November 2025](https://obr.uk/investigation-into-november-2025-efo-publication-error/), I have yet to hear anything from the organisation that approaches an acknowledgement of its historic errors, or any hint at lessons learned from these failings. What we will get at [the end of October](https://obr.uk/autumn-2026-forecast-date-announced/) is another set of numbers which I for one will have very little confidence in, but which the government and the media will assume are blessed with the sort of insights reserved only for deities. _(Neil in the margin: The OBR’s three-member board, which makes the final judgements in its forecasts. Its members are appointed by the Chancellor, with the consent of the Treasury Committee.)_

As an additional aside, the Bank of England has surpassed even the OBR’s incompetence on this aspect of the UK economy. As recently as July, [the MPC was forecasting](https://www.bankofengland.co.uk/monetary-policy-report/2026/july-2026) that business investment would decline by 1.5% in 2026, so committing an even more egregious error than its peer institution. Once again this suggests to me, for all the sophistication of these organisations, that they are just not very good at understanding what the hell is going on in the economy. This is extremely troubling given that they are supposed to be better than everyone else at this, given the personnel, resources and information at their disposal, and the fact that their analysis leads directly to real policy decisions that affect all of our lives.

![Forecast to fall, business investment grew 5.2%](https://r4at4qm6kmohrtvq.public.blob.vercel-storage.com/charts/chart-lord-deliver-bi-forecasts-a71e8b36c2a3-light.png)

_Even if business investment flatlines for the rest of the year, 2026 growth would be 3.6%. Both forecasts are already out by more than four percentage points._

## Conclusions

The point of this note, as I said at the start, is not to depress its readership but to alert it to the fragility and errors of those that govern us. Clearly there is not much we can do about it other than resist the temptation, which I was guilty of when I was younger, of believing most of what these organisations say. We should all retain a very healthy level of scepticism about their output, which is not only frequently wrong but all too often wrong in the same direction. Their excessive pessimism has become ingrained in the DNA of these institutions, especially since the pandemic, and continues to frame all of their output. My antidote is to seek out opinions and analysis which differ from the orthodoxy and to always retain a healthy suspicion of a crowded consensus: it’s invariably wrong.