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Last night Adam Posen gave a speech to the NIESR about the differences between the recoveries in the UK and the US entitled “Why is their recovery better than ours?”

Posen argues that stronger household spending and lower inflation in the US have played a part in the difference between the two recoveries, but it is his point corporate investment has rebounded much more in the US than the UK that I want to look at here. It is certainly a pertinent issue, as figures released by the ONS this morning highlight: business investment in the UK contracted 3.3% in the last quarter of 2011. The OBR's forecasts for the year ahead suggest weak growth is likely to continue.

So, why is corporate investment stronger in the US? Posen argues this is because:

There are more non-bank options for providing finance in the US

He says:

“This is due to the lack of competition in the UK banking system compared to the US, and the smaller proportion of non-financial businesses which have access to loans, bonds, and/or securitization thereof in the UK than in the US.

There is less spillover from the euro area risks in the US than the UK

He says:

“The ongoing financial and macroeconomic risks to the euro area raise both the cost of credit and the need to provision for UK banks far above that for most US banks, which further inhibits reasonable allocation of risk capital. This is due to the inherent exposure of the UK economy to the euro area economies as well as the accumulated foreign lending to the euro area by UK banks during the boom years.”

These are both good points; though I would also add that the more favourable capital allowances in the US are likely to have played a part in stronger investment figures as well (this blog from the WSJ provides a nice illustration).

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