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Sustainable Economy > Published by Will Straw, June 30th 2010 at 1:39 pm

Business investment continues to stagnate

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New data out today for January, February, and March suggests that business investment is stagnating at around £27 to £30 billion – nearly a quarter below their peak level. Coalition policies look set to exacerbate the problem.

As the graph shows, business investment has failed to rebound to anywhere near the peak levels of 2007 and instead is stuck below £30 billion. It is still down 7.7 per cent on this time last year and down 22.4 per cent on its peak level - although it went up slightly on its trough last month.

Total manufacturing investment, meanwhile, continues to fall and is down a further 0.2 per cent on the last quarter of 2009 at £2.4 billion. It is now down 37.6 per cent on its peak. Most of the rise in business investment is due to growth in service sector investment.

It will certainly be interesting to see the Q3 data later in the year when we will get some indication of how the Coalition’s policies start to affect the numbers. The Government has recently cut industrial support including the loan to Sheffield Forgemasters; announced the end of Regional Development Agencies; and cut investment allowances which was described by the Institute for Fiscal Studies as likely to favour “supermarkets over manufacturers“.

It is hard to square those policies with the Office of Budget Responsibility’s prediction (Table C2, p.84) that business investment will jump from 1.4 per cent in 2010 to 8.1 per cent in 2011, 10.0 per cent in 2012, and 10.3 per cent in 2013. In total, the OBR is predicting a 56.2 per cent rise in business investment by 2015.

  • http://twitter.com/houseoftwits/status/17411074877 House Of Twits

    RT @leftfootfwd Business investment continues to stagnate (and Lib-Con policies will make it worse) http://bit.ly/bIx8dl

  • http://twitter.com/trakgalvis/status/17411816442 Trakgalvis

    Business investment continues to stagnate (and Lib-Con policies will make it worse) http://bit.ly/bIx8dl via @leftfootfwd

  • Felicity

    … whilst I don’t think the Con-Lib policies will do much for investment, this is slightly biased reporting of the figures: in the last quarter business investment increased by 7.8% and not, as you have described it, ‘slightly’.

  • http://twitter.com/michael07/status/17411883479 michael dawson

    RT @trakgalvis: Business investment continues to stagnate (and Lib-Con policies will make it worse) http://bit.ly/bIx8dl via @leftfootfwd

  • Mark Stevo

    I think the reasons for expecting a reasonably robust turnarOund in business investment are pretty solid – investment is always more volatile, as indeed your statistics on the decline indicate. Certainly a recovery from the trough of the last year isn’t so improbable over a prolonged period.

  • Mark Stevo

    By the way, what is a reasonable expectation for next year? What sort of growth would you say would indicate a failure of Tory investment policies?

  • Felicity

    Hi Mark,
    After the recession in the early 90s business investment didn’t reach pre-recession levels until 1996, so if business investment remains depressed it wouldn’t be surprising. However, the Tories want economic rebalancing, which would require (I assume) a boost in investment, so I think you’d want to see it rising pretty rapidly to support that objective – which presumably means supporting things like the Forgemasters loan…

  • mike

    next time we have a businessman or CBI spokesperson on the Tv or radio saying we should have major cuts and “rebalancing the economy” we should ask them how many jobs they plan to create in the next two years

  • mike

    mich is made of pay cuts in the private sector

    can anyone tell me of a Chief exec in the top 100 companies, who has taken a pay cut on their basic pay ???

    Can anyone expalin when the economy is doing so badly why bankers have awarded themselves record bonuses ???

  • Mark Stevo

    I’m not sure the timeline to get to the pre-recession levels of spend (on a real basis) forecast by the OBR is radically different from that Felicity (4-5 years). As for Forgemaster, I don’t know the details, but it is not beyond the bounds of possibility that this loan was not made with entirely economic reasons in mind.

  • http://twitter.com/ananda_smith/status/17419467861 Ananda Smith

    Business investment continues to stagnate | Left Foot Forward: Business investment is stagnating. Coalition polici… http://bit.ly/cCrab2

  • http://twitter.com/trumpnetwork1st/status/17419475312 Daniel Brawn

    Business investment continues to stagnate | Left Foot Forward http://bit.ly/dzyhs2

  • http://fiexpress.com/?p=5220 Business investment continues to stagnate | Left Foot Forward | Business and Financial News

    [...] more: Business investment continues to stagnate | Left Foot Forward // Tags: business, economy, economy-meet, exacerbate-the-problem, help-the-economy, obr, [...]

  • Anon E Mouse

    mike – Those chief execs are in private companies, not funded by the taxpayer – what business is it of yours what the do or do not pay themselves?

    You seem to be advocating state control of private companies with that type of remark…

    Remember mike: We’re all in this together…

  • Felicity

    Mark, you’re right about the OBR forecasts – I would genuinely challenge their belief that this rebalancing can happen with depressed investment though. I’m not sure where it’s supposed to come from!
    And yes, Forgemasters was clearly politically motivated, though as it happens it could be a strategically important firm if the UK wants to position itself as an economy at the forefront of nuclear energy development.

  • http://socialisteconomicbulletin.blogspot.com/ Michael Burke

    This is a key point. Investment is the determinant of future prosperity. Gross fixed capital formation fell by £45.5bn in the recession, 54% of the entire fall in GDP of £84bn, the decline in business investment being £42bn (all data annualised).

    But we have seen from today’s Guardian that job cuts in the public sector will directly lead to job cuts in the public sector, where there is already spare capacity. On the OBR’s own forecasts household consumption will be subdued for the entire period, rising by just 10% to 2015. So why the extravagant forecasts for growth in business investment?

    Exports maybe? But the spare capacity applies the export-oriented sector too, so an export-led investment surge seems outlandish, especially while firms are losing tax reliefs on capital investment.

  • http://twitter.com/sharonjones328/status/17442700820 Sharon Jones

    Business investment continues to stagnate | Left Foot Forward: Business investment is stagnating. Coalition polici… http://bit.ly/cCrab2

  • http://twitter.com/gabiurse/status/17443800320 Gabi Urse

    Business investment continues to stagnate | Left Foot Forward http://bit.ly/b7w3YP

  • http://twitter.com/profit_coach/status/17443802431 Al Cooper

    Business investment continues to stagnate | Left Foot Forward http://bit.ly/aIbnRU

  • http://twitter.com/lilymaggi/status/17461636750 Lily Ma

    Business investment continues to stagnate | Left Foot Forward: Business investment is stagnating. Coalition polici… http://bit.ly/cCrab2

  • http://twitter.com/mybusinesstweet/status/17469533191 Jenny

    Business investment continues to stagnate | Left Foot Forward: Business investment is stagnating. Coalition polici… http://bit.ly/9q9Jrs

  • http://twitter.com/janewatkinson/status/17564044333 Jane Watkinson

    RT @leftfootfwd: Business investment continues to stagnate http://bit.ly/bIx8dl like to see how 2 million private sector jobs materialise

  • http://bestblogs.labourhome.org/2010/06/30/business-investment-continues-to-stagnate/ Business investment continues to stagnate « The best Labour blogs

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