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Macroeconomic Drivers of Corporate Investment in the United Kingdom: A Multivariate Analysis

Author

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  • Mike Djesa

    (Faculty of Economics, University of South Bohemia in České Budějovice)

Abstract

This study examines the macroeconomic drivers of corporate investment in the United Kingdom using a multivariate time-series framework. Focusing on five key variables-interest rates, inflation, GDP growth, exchange rates, and corporate profits-the analysis investigates their combined effects on aggregate corporate investment using annual data from 1990 to 2022. By concentrating on macroeconomic determinants rather than firm-level factors, the study provides evidence on how monetary and real-sector conditions shape investment behavior in a mature, market-based economy. The contribution of this study lies in integrating long-run macroeconomic trends within a multivariate econometric framework that captures interactions between corporate profits, inflation, and exchange-rate movements in the UK over three decades of evolving policy regimes. Given the mixed order of integration among the variables, the study employs an Autoregressive Distributed Lag (ARDL) bounds testing approach to examine long-run relationships and short-run adjustment dynamics. OLS and Two-Stage Least Squares (2SLS) estimates are retained as benchmark and robustness checks. The results indicate that higher interest rates exert a significant positive effect on corporate investment, consistent with the endogenous and pro-cyclical nature of UK monetary policy. Corporate profits have a strong positive influence, highlighting the importance of internal finance. Inflation exhibits a negative and significant impact, while GDP growth shows a weak accelerator effect and exchange-rate movements are statistically insignificant. These findings underscore the dominance of profitability and policy credibility in driving UK investment and offer relevant insights for sustaining long-term capital formation.

Suggested Citation

  • Mike Djesa, "undated". "Macroeconomic Drivers of Corporate Investment in the United Kingdom: A Multivariate Analysis," Economics Working Papers 2026-03, University of South Bohemia in Ceske Budejovice, Faculty of Economics, revised 09 Jun 2026.
    • Handle: RePEc:boh:wpaper:03_2026
    DOI: 10.32725/ewp.2026.003
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    References listed on IDEAS

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    JEL classification:

    • E22 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Investment; Capital; Intangible Capital; Capacity
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • G31 - Financial Economics - - Corporate Finance and Governance - - - Capital Budgeting; Fixed Investment and Inventory Studies

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