UK business investment tumbled during the final quarter of last year, official figures have revealed, with economists attributing this to companies’ increased caution amid uncertainty following the Brexit vote.
Figures published yesterday by the Office for National Statistics showed business investment dropped by one per cent quarter-on-quarter in the final three months of 2016. It was down 0.9 per cent on the final quarter of 2015.
Gross domestic product growth in 2016 was revised down from two per cent to an even further below-trend 1.8 per cent in the data. But expansion in the final quarter of 2016 was revised up from 0.6 per cent to 0.7 per cent.
Household spending continued to drive growth in the fourth quarter, although its pace of increase slowed. The ONS figures show household spending grew by 0.7 per cent in the final quarter of last year, having increased by 0.9 per cent in the preceding three months.
Howard Archer, chief UK economist at IHS Markit, said: “The main disappointment in the fourth-quarter GDP data was a one per cent quarter-on-quarter and 0.9 per cent year-on-year dip in business investment – which suggests companies became more cautious amid the mounting uncertainties facing the economy centred on Brexit.
“It increasingly looks like the fourth quarter of 2016 was as good as it gets for some time for the UK economy.”
Noting a 0.3 per cent fall in UK retail sales volumes in January, following a 2.1 per cent month-on-month drop in December, Mr Archer added: “There is now mounting evidence that consumers are reining in their spending as their purchasing power is eroded by markedly rising inflation.
“Mounting evidence of consumer spending slowing is potentially highly significant, as the resilience of the economy over the second half of 2016 was largely due to consumers keeping on spending after June’s Brexit vote. Evidence that consumers are now beginning to draw in their purse strings reinforces our belief that 2017 is likely to be an increasingly difficult year for the UK economy. Like a slow puncture, we suspect that the economy will gradually lose air as the year proceeds.”
Paul Hollingsworth, UK economist at Capital Economics, said: “The breakdown showed that business investment fell by a quarterly one per cent in Q4, perhaps suggesting that Brexit uncertainty is starting to weigh on firms’ spending plans. Household spending growth slowed too.”
He added: “We expect household spending growth to slow further as inflation picks up and
erodes real income growth. And lingering uncertainty about the UK’s future
relationship with the EU as negotiations get under way may hold back investment.”
However, Capital forecasts UK growth this year will be “somewhat stronger” than the consensus expectation of 1.4 per cent.
Net trade made a positive contribution to growth in the final three months of last year, as exports jumped by 4.1 per cent quarter-on-quarter and imports fell by 0.4 per cent.
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