Business investment suffers sharpest fall in 37 years

The CBI in Manchester: Corporate spending slump casts gloom. Hopes of early entry into euro dampened

The parlous state of the corporate sector was thrown into sharp relief yesterday by official figures showing the slump in business investment over the summer was the worst since records began 37 years ago.

Investment by firms fell by almost 3 per cent in the third quarter, after what looked to have been the beginning of a slowing in the rate of decline in the previous three months. The latest fall takes the annual rate down to minus 12.4 per cent, the worst performance since the series began in 1965. The slump was led by manufacturing where firms' capital expenditure tumbled by more than 7 per cent during the quarter.

While the services sector saw a more modest decline of 2 per cent, analysts said that it showed the pain in manufacturing was spreading across the corporate sector. George Buckley, a UK economist at Deutsche Bank, said: "These figures serve to highlight just how wide the dichotomy is between the strength of the consumer and the weakness in the corporate sector."

The figures struck a gloomy note in Manchester where the leaders of the Confederation of British Industry were winding up their annual conference. Digby Jones, its director general, said the "worrying situation" was another reason why Chancellor Gordon Brown should rule out any further tax hikes for business in today's pre-Budget report. "This conference has sent its message loudly and clearly to the Government, a message that these figures echo. I strongly urge the Chancellor to make clear his commitment not to increase business taxation," he said.

Mr Jones said he was especially concerned that Mr Brown did not slip in any more backdoor taxes on business in the name of the environment.

Opposition politicians seized on the investment figures saying they dented any hope that the Government would hit its target of raising productivity growth. Matthew Taylor, the Liberal Democrat Shadow Chancellor, said: "Investment is plummeting while the Chancellor fiddles at the edges. The Chancellor's reputation is diminishing as rapidly as investment." Mr Jones rounded off a conference which has seen trenchant attacks on the Government over tax rises and red tape by renewing his criticisms. He said the frustration felt by many businesses was now turning into anxiety.