Katie Farrant and Magda Rutkowska
UK private non-financial corporations (PNFCs) consistently ran a financial surplus between 2002 and 2013. They now hold around £1.8 trillion of financial assets, including £0.5 trillion of cash. This has attracted attention from policymakers and the media. Should we expect companies to spend these assets to finance investment? The MPC considers this to be possible (see e.g. the February 2015 Inflation Report). Many agree, calling on companies to spend their ‘cash hoards’ (see e.g. these articles in the Telegraph and the FT). Here, we explain why we think companies are unlikely to run down their assets significantly. This does not mean that they will not invest; rather, they will not necessarily finance investment through liquidating assets.