Britain's economy shrank even more dramatically than previously thought in the second half of last year, official statistics are expected to reveal today, after the latest data from the Office of National Statistics showed a disastrous fall in business investment during the final months of 2008.
The ONS said yesterday that business investment in the final quarter of last year was 3.9 per cent lower than in the previous quarter and 7.7 per cent down on the same period of 2007. The slump in investment was particularly marked in the manufacturing sector, where the corresponding figures were 11 per cent and 15.7 per cent. Business investment also fell sharply during the third quarter of last year.
Howard Archer, chief European and UK economist at IHS Global Insight, said the fall-off in investment, the worst such decline since 1991, was so marked that the ONS's first estimates of economic growth for the second half of last year would prove over-optimistic. The ONS is due to publish its revised figures today.
"The sharp fall in business investment reinforces belief that the revised data will show that the economy contracted even more sharply in the fourth quarter of 2008 than previously estimated," he said.
"Businesses are increasingly and substantially scaling back their investment in the face of sharply weakening demand, rising levels of spare capacity, worsening cash flows and very tight credit conditions, deteriorating profitability, and serious concerns about the potential length and depth of the recession."
IHS Global Insight now expects the ONS to say the economy shrank by 1.6 per cent in the fourth quarter of last year, worse than the 1.5 per cent previously announced.
Andrew Sentance, a member of the Bank of England's Monetary Policy Committee, said the latest economic data underlined the need for policymakers to offer further help. "A persistent and prolonged period of deflation still remains an outside risk, in my view," said Mr Sentance, who is known for his hawkish views on interest rate policy. "But there is a strong case for providing additional stimulus to the economy to head it off more decisively."
His comments will be seen as further increasing the likelihood that the MPC, which has already cut interest rates from 5 to 1 per cent over the past five months, will opt to begin using its "quantitative easing" powers when it meets next week, printing more money in an attempt to reflate the economy.
Mr Sentance was speaking as further discouraging economic data was published yesterday.
The Confederation of British Industry said that just one in four retailers reported higher sales in the first half of February than in the same period last year, with a little over half reporting falls.
The CBI said that while the rate of decline of retail sales had slowed compared with January, it was expecting a further deterioration in March.
There was also little sign of any improvement in the mortgage market, where the British Bankers' Association said home loan approvals were 43 per cent lower in January than in the same month last year. Moreover, while the number of mortgages approved rose by a few hundred last month compared with December, the net value of mortgage advances fell from £3.3bn to £2.9bn in January.
The BBA's figures also suggest that the recession has begun to have a dramatic impact on levels of savings, with banks registering a £2.2bn fall in personal deposits last month.
Such a marked withdrawal of savings is likely to reflect bank customers' unhappiness with interest rates, which have fallen sharply as the base rate has been slashed, but may also indicate some cash-strapped households are beginning to draw down emergency funds.
The dismal performance of the economy is also continuing to act as a drag on the stock market, which fell by almost 1 per cent yesterday.
At one stage, the FTSE 100 index of shares in leading companies fell to its lowest level of any time since the beginning of the credit crisis, before recovering some ground later in the day as the US stock market posted modest early gains.Reuse content