Collapse in UK business investment gathers pace

BUSINESS investment slumped in the last three months of 2009 by an annual 24.1 per cent – the worst since 1967 – as firms have been forced to cut costs and improve cash flow to survive the worst post-war recession.

Official figures showed that investment in the fourth quarter declined at an accelerated quarterly pace of 5.8 per cent compared to a slowdown of 1.8 per cent in the third quarter. Real business investment now stands at £27.12bn, the lowest level since the second quarter of 1992.

Investment by manufacturing firms fell 35 per cent on the same period in 2008 while service sector investment was down 30 per cent.

The faster decline has raised questions about firms’ credit availability as well as the sustainability of the UK’s wider recovery.

Benjamin Williamson, economist at the Centre for Economics and Business Research, said it set an “ominous scene for tomorrow’s second estimate of fourth quarter gross domestic product. The results suggest that the private sector recovery will be weaker than previously thought”.