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UK business investment falls sharply, may hit Q2 GDP

Business investment in  Britain fell by a whopping 10.4 per cent in the three months to June,2009.It is sharpest decline in 24 years and raising the risk that Q2 GDP figures could be revised down, official data showed on Thursday.

Official data said that when the figure is compared with a year ago, investment fell 18.4 percent, the biggest drop since records began in 1967.Analysts polled by Reuters last week had predicted no change to the preliminary estimate of GDP in the second quarter published last month showing a 0.8 per cent decline when updated data come out at 0830 GMT last Friday. But the business investment data, which on their own would reduce GDP by something like 1.1 per cent, has got some of them thinking again. “Unless there is an upward surprise elsewhere in the breakdown that offsets the diabolical business investment component, we could be looking at a downward revision to less than 1 per cent or lower,” said Alan Clarke, economist at BNP

Paribas.Clarke said that such an outcome would contrast squarely with better than expected data out of countries like Germany and France which posted a surprise return to growth in the second quarter.The 0.8 per cent decline in UK GDP revealed last month was in itself a shock as many analysts and even policymakers had expected only a small fall in output after the 2.4 per cent drop in the first quarter.Colin Ellis, an economist at Daiwa, said a downward revision was “definitely possible” though his best guess would still be no change to the initial estimate because of a positive contribution from net trade and perhaps stocks.

In either case, such dire investment figures are likely to act as a drag on the economy for some time yet.”Manufacturing investment has been a casualty of the global recession as both cash flow and confidence have been hit hard,” said Lee Hopley, head of economic policy at the Engineering Employers’ Federation.”Such a rapid and significant pull back in investment in modern machinery and equipment presents risks for a durable recovery, especially as investment intentions can be slow to recover following a downturn.”Separate figures from the Confederation of British Industry showed retail sales fell slightly more than expected in August, though retailer optimism picked up a bit.Analysts said the survey was consistent with a small fall in the official measure of retail sales in August.House prices, however, jumped 1.6 per cent this month, according to the Nationwide building society, the fastest rise in 2-1/2 years, in a further sign the property market is picking up.


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