Surprise surge in business investment

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The Independent Online

Business investment in Britain surged in the second quarter, official figures showed yesterday, leading some analysts to say this raised the chances that economic growth figures could be revised higher.

Business investment in Britain surged in the second quarter, official figures showed yesterday, leading some analysts to say this raised the chances that economic growth figures could be revised higher.

Investment increased by 2.6 per cent from the first quarter, rather than the previously reported 0.5 per cent, bringing it to a new record level, the Office for National Statistics reported. Investment totalled £29.5bn, compared with £28.8bn in the first quarter.

Higher capital spending by manufacturers and construction companies was behind the gain, which was the biggest quarterly increase since the second quarter of last year and took the annual growth rate to 5.9 per cent. Final figures for gross domestic product in the second quarter will be published today.

Philip Shaw, at Investec, said, "Business investment is consistent with an upward revision to 1 per cent in second-quarter GDP." Michael Hume, an economist at Lehman Brothers, also expects a revision to 1 per cent, from the previously reported 0.9 per cent. Business investment accounts for about one-tenth of Britain's GDP.

Mr Shaw said the estimate for the first quarter could also be upped to 0.8 per cent from 0.7 per cent as manufacturing performed better than originally reported in that period. However, more recent data on factory orders from the Confederation of British Industry cast doubt on industry's recovery again.

Ciaran Barr, at Deutsche Bank, noted that business investment has risen at an average pace of 1.7 per cent in the past five quarters, the longest string of increases since 1997-98.

Meanwhile, UK financial institutions raised their investment in gilts to a record high in the second quarter and cut holdings of equities, corporate bonds and overseas assets.

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