By Katie Farrant, Mika Inkinen, Magda Rutkowska and Konstantinos Theodoridis of the Bank’s Macro Financial Analysis Division.
Capital markets play an important role in financing UK companies. Since 2009, corporate bond issuance has been strong, and yet aggregate UK business investment has remained weak. In part, this pattern of company behaviour can be explained by companies choosing to issue bonds in order to reduce other forms of debt, such as bank loans. But company-level data show that there is considerable heterogeneity in companies’ investment behaviour. Companies that use capital markets have increased their investment significantly since the trough in 2009. Their investment growth, however, fell in 2012, suggesting that other factors besides access to finance were also influencing companies’ investment decisions at the time.