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Massive fall in business investment

Business investment in the last quarter of 2009 was 24.1% down on the same period of 2008. Not only has investment fallen by a quarter, but it is continuing to fall. The figures for the fourth quarter of last year were actually 5.8% down on the previous quarter.

The fall in business investment was evident across most industries, although there was a larger fall in manufacturing than non-manufacturing. Private sector manufacturing had the largest quarter-on-quarter fall, down by 8.4 per cent, whilst private sector non-manufacturing is down by 5.7 per cent and public corporations non-manufacturing is down by 2.3 per cent.

The recent trend can be seen in the graphic below.

Source: ONS

Compared with the fourth quarter of 2008, total business investment fell by 24.1 per cent. This fall was mainly from manufacturing investment being down 35.3 per cent. The reduced investment in private sector manufacturing, down 35.3 per cent, is mainly from industries classified within metals and metal goods, down by 50.0 per cent, solid and nuclear fuels, oil refining, down by 43.8 per cent, chemicals and man made fibres, down by 38.9 per cent, and engineering and vehicles, down by 38.8 per cent.

The planned closure of the Corus steelworks on Teesside is symptomatic of this downturn and yet given that we are supposed to be moving out of recession, we would expect investment to start turning back up again. As a component of aggregate demand, with total investment accounting for about 8% of the UK economy, these figures are yet another contributor to the pessimistic view that we may well move back into recession this year. Watch out for the revised GDP figures for the last quarter being issued today.

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Posted in economic growth, GDP, Investment, Manufacturing, recession

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