Fears Over Economic Recovery As Business Spending Slashed

(Guardian) – INVESTMENT BY UK BUSINESSES on new buildings and equipment plunged by a record amount over the past year, casting fresh doubts over the strength of Britain’s recovery from recession.

The Office for National Statistics reported this morning that business investment fell by 5.8% between October and December 2009 compared with the previous three months, worse than City analysts had predicted. The decline means that business investment was 24.1% lower at the end of 2009 than at the start – the worst annual decline since records began in 1967.

The fall was particularly acute in the manufacturing sector, where business investment plunged by 35.3% during 2009.

Howard Archer, economist at IHS Global Insight, said the data was “truly dire”, undermining hopes that UK GDP for the fourth quarter of 2009 could be upgraded tomorrow. Archer warned there was even a danger that the first estimate of 0.1% growth could even be downgraded, which would mean that the UK was still officially in recession.

“Furthermore, the sharp overall and ongoing decline in business investment could threatens to have significant long-term damaging repercussions for the economy’s potential output,” he added.

Business investment makes up more than 10% of overall UK GDP.

David Kern, chief economist at the British Chambers of Commerce (BCC), agreed that the preliminary business investment figures showed “alarming declines”. He said companies had been forced to conserve cash and not spend on new equipment, a decision which would make it harder for British industry to grow in the future.

“In the face of weak demand and acute financial pressures, businesses have had little choice but to slash investment and stocks in order to survive. But, such a situation cannot persist over the long-term without damaging consequences,” Kern warned.

“In order to promote investment, companies need continued support now – and the confidence that a credible plan is in place to mend our public finances as the recovery takes hold,” he added.

… (26/02/2010) – Spectre Of Double-Dip Recession Looms

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