Inflation, Interest Rates and Investment Available to Purchase

The unwillingness to borrow for investment purposes has been much in evidence in recent years and is well documented, the result being a process of “deindustrialisation” in the British economy. Whereas a large number of considerations undoubtedly impinge upon the investment decision the cost of borrowing is frequently cited as a primary determinant of the propensity to invest. It is tempting, therefore, to subscribe to the view that the recorded low rates of capital formation of the last few years are due to unusually high interest rates and equally appealing to assume that a sharp decline in interest rates will lead to a revival of investment and the regeneration of manufacturing industry.