UK companies 'need support' as investment levels in Q4 of 2009 plunge

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BUSINESS leaders yesterday called for further support for struggling UK companies after an "alarming" plunge in investment levels in the final quarter of 2009.

Official figures showed business investment in Britain falling by a record 24.1 per cent in the three-month period, compared with a year earlier.

The 5.8 per cent quarter-on-quarter reduction marked the sixth successive quarter of falls and triggered the steepest annual fall since records began in 1967.

Analysts said the data was far worse than expected and cast doubt on whether Q4 economic growth figures, due to be published today, would be revised higher.

The British Chambers of Commerce described the figures as alarming and claimed the longer-term threats to Britain's productive potential were "very serious".

Chief economist David Kern said: "In the face of weak demand and financial pressures, businesses have had little choice but to slash investment and stocks in order to survive.

"But such a situation cannot persist over the long term without damaging consequences.

"In order to promote investment, companies need continued support now – and the confidence that a credible plan is in place to mend our public finances as the recovery takes hold."

Last month, the Office for National Statistics estimated that GDP grew by 0.1 per cent in the final quarter of 2009, slower than most economists had expected but dragging the UK economy out of recession.

Howard Archer, chief UK economist at IHS Global Insight, said the dire news on business investment diluted hopes of an upward revision to GDP today, adding it "even raises the spectre that this minimal growth could be revised away".

CEBR economist Ben Williamson said: "Worse than expected news for business investment sets an ominous scene for (today's] second estimate of fourth-quarter gross domestic product."

Yesterday's figures came as Business Secretary Lord Mandelson said demand for finance from small businesses remained subdued with applications for loans towards the end of 2009 still down from their 2008 high.

Ministers and central bank policymakers worry that the UK's fragile economic recovery will not gain traction without higher flows of credit within the system.

Answering questions in the House of Lords, Mandelson said: "Data supplied to my department by the four main lenders to small and medium-sized enterprises show ... the number of applications in the final quarter of 2009 some 25 per cent down on the early 2008 high.

"However the value of loans drawn in the final quarter of 2009 was over 7 per cent up on the previous quarter and the majority of businesses applying for support access finance they require."

The ONS report showed manufacturing investment slumped 8.2 per cent on the quarter and 35.3 per cent on the year to 2.3 billion, while private-sector services investment fell 8.3 per cent in Q4.