The UK is recovering. Surveys by Markit and the BCC show that output and orders are rising. There is, though, (at least) one big black cloud here, shown in my chart.It's that firms are still loath to invest. In fact, in Q1 non-financial companies capital spending fell to just 57.9% of retained profits - the lowest rate since records began*. I'm not sure things have much changed since March. The BCC's otherwise up-beat survey found that services companies' capex is still low, and Bank of England data show that firms are still increasing cash piles and repaying debt - consistent with a continued aversion to real spending.

It's hard to blame this investment dearth upon firms being forced to save by credit constraints. Today's Bank of England survey shows that the availablity of credit to firms has generally increased since 2010. And April's CBI survey (pdf) found only 12% of manufacturers saying that a lack of finance is a constraint upon investment.

So, what is the problem? There's a cyclical problem of weak demand; that CBI survey found 54% of firms saying investment was constrained by uncertainty about demand and 40% saying it was constrained by inadequate prospective profits. I'd add that this is overlain upon a longer-term lack of monetizable investment opportunities: note that the fall in the ratio in my chart came in the early 00s, and not during the crisis.

You might, however, suggest another, rosier possibility - that the relative price of capital goods has been falling, so that a given amount of nominal spending now goes further than it did: the prices of business investment goods haven't change much since the early 00s, which means they have fallen considerably relative to the GDP deflator.

This possibility, though, runs into two problems:

- Why isn't the price-elasticity of demand for capital higher? If it were greater than unity, then, we'd have seen nominal investment rising rather than falling.

- It deepens the productivity puzzle. It's sometimes said that labour productivity has stagnated because firms have substituted from capital to labour. However, since 2010 capital goods (measured by the business investment deflator) have fallen by around five per cent, pretty much the same as real wages. Now, it's perfectly possible for there to be capital-labour substitution without a change in relative prices. But to the extent that there has been, it's hard to attribute this merely to the drop in real wages.

Whatever the reason for weak investment, two things are clear. One is that we'll not get a decent recovery unless this changes. The other is that the long-term weakness in capital spending seems inconsistent with neoliberal notions that low business taxes and a quiescent labour force will increase investment.

And herein lies my worry. Low taxes and weak workers might not be sufficient to promote investment. But it is theoretically possible that they are necessary. If so, then the social democratic response to neoliberalism might be inadequate.

* The new vintage of data only goes back as far as 1998; the ONS is even better at expunging figures from history than Stalin was. However, previous vintages of data show that capital spending was a far higher share of retained profits in the 1980s and 90s - quite often exceeding 100%.