UK Q4 business investment falls at record annual rate

Business investment in Britain fell by a record 24.1 percent year-on-year in the last three months of 2009, casting doubt on whether fourth-quarter GDP will be revised higher when a fresh estimate is published on Friday. The Office for National Statistics said on Thursday that business investment fell 5.8 percent to 27.121 billion pounds ($41.59 billion) in the final quarter of 2009, giving the steepest annual fall since records began in 1967.

The figures were much lower than analysts had forecast and are likely to dampen hopes for an upward revision to total Q4 GDP on Friday, which the ONS estimated last month to have grown 0.1 percent, slower than most economists had expected.

"The substantial fall in business investment in the fourth quarter of 2009 is a horrible surprise and extremely disappointing," said Howard Archer, UK economist at IHS Global Insight. "It dilutes hopes of an upward revision on Friday to UK GDP growth … and even raises the spectre that this minimal growth could be revised away," Archer added.

Manufacturing investment fell 8.2 percent on the quarter and 35.3 percent on the year to 2.304 billion pounds, while private-sector services investment dropped 8.3 percent in Q4 for a 24.5 percent annual decline to 18.376 billion pounds.

"Hopefully, the worst of the contraction in business investment is now over, but it is likely to remain limited for some time to come given substantial excess capacity, still limited demand, and significant concerns and uncertainties about the strength and sustainability of the recovery," Archer said.

Gilt futures <FLGH0> did not move on the news, though sterling weakened briefly against the euro <EURGBP=>.