At last, business investment is picking up

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The Independent Online

Business investment picked up in the first quarter of the year, accounting for half of the economy's growth, the Office for National Statistics said yesterday.

In a hopeful sign for economic rebalancing, the ONS reported that investment by firms jumped by 5 per cent in the first quarter, up from its previous estimate of a 2.7 per cent expansion and the quickest rate recorded since early 2012.

"This not only indicates that growth is becoming less centred on consumer spending but could also have positive implications for future productivity growth," said Howard Archer of IHS Global Insight.

Business spending accounted for half of the overall 0.8 per cent GDP growth over the period. Some economists had expected growth to be revised up by stronger than expected construction growth but this was offset by a downward revision to the output from the dominant services sector.

In another tentative sign of rebalancing, the current account deficit in the first quarter shrank to £18.5bn, down from £23.5bn in the final quarter of 2013 – a drop from 5.7 per cent to 4.4 per cent of GDP with the ONS reporting that the improvement was driven by a lower trade deficit and a smaller shortfall in net investment and transfers income.

The growth uplift from business investment spending was cancelled out by firms' running down the inventories, which meant the overall GDP expansion was again heavily supported by household spending. According to the ONS the household savings ratio ticked up slightly to 4.9 per cent from 4.8 per cent in the final quarter of 2013.