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Lack of investment may hold businesses back from recovery


Small businesses are choking from lack of investment that is fuelling fears of a difficult long-term recovery from the recession.

Capital investment by business plummeted 10% compared with the previous three months.

The rate of investment is falling at the fastest for nearly 25 years, is down 18.4% year on year and is the worse decline since records began in 1966, according to the Office of National Statistics.

Investment bad news was posted across most business sectors:

    * Worst-hit was private sector manufacturing, where capital spending was down by 16.8% across the sector as investment in textiles, clothing and footwear businesses collapsed by 25%, engineering and vehicles 24% and the food, drink and tobacco business recorded a 21% drop.

    * In non-manufacturing, investment by services companies was down 11.4% and by 9.1% in construction. The only categories where investment rose were health and social work.

No explanation for the falls were given by the statistics, but one reason must be linked to the banks steadfast refusal to lend businesses money for investment over the past 18 months.

The figures seem to go against those in other sectors of the economy talking about tentative signs of an upturn. 

Recent statistics were encouraging consumer spending in July came in up 3.6% year on year, and Nationwide reported that house prices rose for the fourth consecutive month, the fastest rate for more than two years.

Commenting on the figures, Chief Economist at the British Chambers of Commerce David Kern said:

“The further sharp decline in business investment signals serious threats to Britain’s long-term recovery. In the face of weak demand and mounting financial pressure, businesses have little choice but to cut investment and stock.

“Unless this trend can be reversed, the long-term productive capacity of the economy will be damaged, and the country will lack the necessary capital stock to sustain a recovery. This must be kept in mind when the government plans a fiscal strategy to repair the public finances. It is critical not to impair the business sector’s ability to invest and create wealth.”


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