UK Business Investment Drops by £400m in Fourth Quarter

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Business investment slumped in the fourth quarter as the UK economy declined once again, according to the Office for National Statistics.

Continued domestic weakness, renewed fears over eurozone stability, and the looming threat of the fiscal cliff in the US all weighed on UK business sentiment for its future outlook in the fourth quarter.

Investment by business in Britain dropped by £400m in the final three months of 2012, to £30.9bn, when compared with the quarter before, mostly because of a fall in spending among manufacturing firms. When compared with the fourth quarter of 2011, however, business investment had grown by 0.4 percent.

Business investment has fallen well short of forecasts by the Office for Budget Responsibility (OBR), the independent fiscal watchdog, from which the Treasury makes future spending decisions.

In 2011, the OBR predicted business investment in 2012 would grow by 6.4 percent. It only rose by 0.4 percent on the year.

"The reason for this moderation in investment, relative to an otherwise generally more positive year, was most likely due to scepticism about future economic performance," said the ONS.

"Over the fourth quarter, the Markit/CIPS Business Expectations Index for services dipped to an 11-month low as household consumption remained muted in the aftermath of the Olympics, and the Eurozone problems continued to weigh on expectations of export growth.

"The Christmas period opened with slow retail sales in November, ensuring that consumer-facing firms had to work hard to secure a share of the scarce household expenditure.

"Although sales were marginally improved over the previous Christmas, this difficult period for many retailers may have accelerated the dampening of future expectations."

The ONS also noted that credit conditions were improving, as highlighted by a Bank of England survey, but that this does not necessarily translate into more business investment, which is more predicated on confidence in the future than access to loans.
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