Lack of investment will harm growth, warns report

British business is caught in an investment freeze that threatens to slow the already fragile economy, a survey shows today.

Fewer than a fifth of businesses plan to boost investment for growth in the next six months, according to the Lloyds TSB Commercial Business in Britain report.

Weak domestic demand and rising costs have put pressure on profits and confidence among the 1,800 businesses surveyed, leading to a slight fall in investment appetite from January's already weak figure, the twice-yearly survey reveals.

John Maltby, managing director of Lloyds TSB Commercial, said: "With domestic demand in the doldrums, and confidence still muted, it is understandable that firms are worried about investing for the future. "But the fact is that if businesses do not invest it could damage an already fragile recovery and result in even slower growth."

The gloomy data comes ahead of this week's GDP figures, which economists predict will be grim reading and could even see the economy slipping back into negative territory.

Increased business investment is an important requirement if output is to strengthen from the stagnant position of the previous two quarters. Tomorrow's first estimate of output in the second quarter "is likely to make very disappointing and worrying reading", according to Howard Archer, chief UK economist at IHS Global Insight.

"While we estimate that the economy grew by just 0.1 per cent quarter-on-quarter in the second quarter, we are worried that even this projected poor performance could turn out to be too optimistic.

"Economic activity clearly took a significant hit in April from the extra public holiday resulting from the royal wedding, but the softness of the economy runs deeper than this."

Multiple pressures on the economy include weak consumer spending and a slowing housing market, while activity may also have been knocked by the eurozone crisis.