Business investment down in fourth quarter says ONS

Overall business investment in the UK fell 0.5 per cent from the last quarter as investors shied away from the construction industry, according to the latest Office for National Statistics (ONS) figures. A 10.4 per cent drop in investment in the construction industry for the fourth quarter of 2006 dragged down the overall figure for the quarter.

Howard Archer, chief UK and European economist for Global Insight, said: The fall in business investment in the fourth quarter of 2007 is very disappointing and does not bode well for future growth.

Although credit conditions tightened in the fourth quarter and concerns mounted about the economic outlook, it is reasonable to have hoped that business investment would have held up better given extended robust final demand through 2006 and the first three quarters of 2007, increased capacity pressures in a number of sectors, strong corporate balance sheets and elevated profitability.

Tighter lending criteria from banks anxious to avoid high-risk debts in the wake of the credit crunch may be to blame for the fall in investment, Mr Archer said. We suspect that softer business investment will be a significant factor causing UK GDP growth to slow markedly to 1.8 per cent in 2008 from 3.1 per cent in 2007, he added. Compared to last year, however, investment for the fourth quarter of 2007 was up 1.7 per cent as manufacturing investment rose.