Hopes of upward revision in growth dented by savage collapse in business investment

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The Independent Online

Business investment has slumped to it lowest level for more the four years, denting hopes of an upward revision to estimates of economic growth later today.

Business investment has slumped to it lowest level for more the four years, denting hopes of an upward revision to estimates of economic growth later today.

The amount spent by business in the three months to March dropped by 3 per cent compared with the previous quarter to £26.56bn, a fall of almost 9 per cent from a year earlier and close to its worst performance since the end of the last recession in 1991.

Manufacturing investment plunged almost 15 per cent from a year earlier while even the once-robust services sector dropped 10 per cent.

The figures were a savage revision from the first estimate that showed a fall of just 1 per cent in business investment between the two quarters. Investment has also been revised down every quarter for at least four years.

"Big downward revisions to business investment are a symptom of continued corporate pain," said John Butler, UK economist at HSBC.

Analysts said the scale of the revision could knock as much as 0.3 percentage points off overall growth in the first quarter, which is already languishing at zero.

As the economy contracted slightly in the last months of 2001, a downward revision would mean the UK was in recession, according to a commonly used definition.

This would be a major blow to Gordon Brown's claim to have avoided a return to boom and bust. However, the Chancellor's blushes are likely to be saved by upward revisions to imports and government spending and figures showing that industrial production did not contract as much as first thought.

"This reduces the chances that overall GDP growth for the past couple of years will be revised up significantly," said Michael Saunders at Schroder Salmon Smith Barney.

The drop has added another argument for keeping rates on hold when the Monetary Policy Committee meets next week, analysts said.

However, separate figures showed households' confidence remained at high levels in June, pointing to continuing strength in consumer spending. But the long-term revisions to business investment might have wider implications for economic policy, economists said.

On one hand, it could reduce fears that a major over-investment during the boom years would discourage companies from boosting their spending when the recovery took place.

It could also undermine hopes of long-term investment-driven gains in productivity over coming years.

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