According to the Office for National Statistics, private sector investment in renewable energy infrastructure fell by 1.2% in real terms during the final quarter of the financial year. This marked the first contraction in green energy capital expenditure in three years, driven by a 3.1% decline in onshore wind and solar grid-connection projects.
Industry analysis indicates that developers are facing a squeeze on profit margins due to escalating supply chain costs and grid-connection delays. Consequently, boards are adopting a risk-averse posture and deferring capital-intensive projects. The Bank of England's sustained high bank rate has driven up the yield on corporate debt, raising the hurdle rate for major infrastructure investments. Furthermore, the expiration of the government's temporary 'super-deduction' capital allowance scheme has significantly increased the post-tax cost of machinery and physical capital, while shifting regulatory policies have heightened economic uncertainty, damaging developer confidence.
Extract C suggests that 'developers are facing a squeeze on profit margins... and deferring capital-intensive projects'.
Explain two factors that are likely to cause a fall in investment spending.
222 exam-style questions on AQA A Level Economics 2.2 How the macroeconomy works: the circular flow of income, aggregate demand/aggregate supply analysis and related concepts, covering 2.2.1 The circular flow of income, 2.2.2 Aggregate demand and aggregate supply analysis, 2.2.3 The determinants of aggregate demand, 2.2.4 Aggregate demand and the level of economic activity, 2.2.5 Determinants of short-run aggregate supply, and 2.2.6 Determinants of long-run aggregate supply. Each one has a worked solution and a mark scheme showing where the marks go.