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August 27, 2009    

Sharp fall in business investment in Q2

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by Kay Murchie

Business investment in Britain fell by 10.4% in the April to June period - the biggest quarterly fall since 1985.

Official figures show that the amount spent by businesses on a range of investments, such as new computers and building works, fell to £29.8 billion during the period.

According to economists, the figures will raise concerns that Q2 GDP figures could be revised downwards.

Official figures showed a fall of 0.8% during the second quarter but many now believe this could be revised to -1% or even lower - figures are due to be released tomorrow.

Meanwhile, on an annual basis, investment fell by 18.4% when compared with the second quarter in 2008 - the largest annual decline since official records commenced in 1967.

According to Colin Ellis, European economist at Daiwa Securities, the quarterly 10.4% fall was much weaker than had been expected.

Meanwhile, Alan Clarke, economist at BNP Paribas, said: “Unless there is an upward surprise elsewhere in the breakdown that offsets the diabolical business investment component, we could be looking at a downward revision to -1% or lower,”

“Manufacturing investment has been a casualty of the global recession as both cashflow and confidence have been hit hard,” according to Lee Hopley, head of economic policy at the Engineering Employers’ Federation.

“Such a rapid and significant pull back in investment in modern machinery and equipment presents risks for a durable recovery, especially as investment intentions can be slow to recover following a downturn,” added Mr Hopley.

In other news today, the Confederation of British Industry reported a slight fall in retail sales in August, while the Nationwide reported a 1.6% rise in house prices for August.

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