Business investment fall adds to GDP woes

Fears that the UK economy is sliding into recession have been fuelled with the release of the latest figures on business investment, which fell by nearly £700m in the second quarter of 2008.

The poor figures increase the chances that the official GDP growth figures for the second quarter of the year, due to be revised today, will be lower than the previously published figure of 0.2 per cent, and edging ever closer to the negative territory many economists expect to see by the end of the year.

The Office for National Statistics reported that investment in the construction sector was especially badly hit in the current slowdown, falling almost 14 per cent, or £113m – while manufacturing investment slid 5.8 per cent to £3.53bn compared with the previous quarter. Better performances in the services sector left the overall picture slightly brighter: total investment between April and June was £35.8bn, 1.9 per cent lower than the first three months of the year.

David Kern, economic adviser to the British Chambers of Commerce, said: "It confirms that businesses are being forced to retrench in the face of the economic slowdown. The worsening economic pressures emphasise the need for the Monetary Policy Committee and the Government to take the correct measures to counter the threat of recession."

Hetal Mehta, senior economic adviser to the Ernst & Young ITEM Club, added: "Businesses are absorbing a large proportion of the high input costs they have been facing, which indicates that profitability is likely to be severely dented, so making it even harder for firms to find the finances for investing."

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