'Serious consequences' if investment chill continues

Published on Friday 25 September 2009 21:28

BUSINESS leaders yesterday warned of "serious consequences" if company investment continues to fall, after official figures revealed a 22 per cent plunge in the second quarter.

The British Chambers of Commerce said firms had "little choice" but to slash capital spend-ing in the face of "weak demand, the banks' reluctance to lend and serious financial pressures".

But the group went on to warn that such a situation "cannot persist indefinitely without serious consequences".

David Kern, chief economist at the BCC, said: "Unless business investment recovers, Britain will lack the capacity to meet rising demand when the recovery gathers momentum. It is critically important that the business sector is not damaged by long-term plans to restore the public finances to health."

Yesterday's revised Q2 data, from the Office for National Statistics, showed business investment fell 10.2 per cent between April and June compared to the previous three months.

That was a slight upward re- vision from the 10.4 per cent decline originally reported last month.

However, investment was down 21.8 per cent compared with the same period a year earlier, a downward revision from an originally reported 18.4 per cent slide.

Business investment in the second quarter totalled just under 29.3 billion, according to the ONS.

Howard Archer, chief UK economist at IHS Global Insight, the forecasting group, said the figures made for a "sorry picture" and noted the slump in business investment was widespread across sectors.

"Businesses are still facing weak demand, high and still rising levels of spare capacity, very tight credit conditions, significant cash flows problems, and deteriorating profitability," he added.

"Consequently, while very low interest rates and improved equity and bond markets are helping some companies to raise finance, this is very unlikely to prevent further contraction in capital investment."