Biggest slump in investment since 1967 as annual figure shrinks 23.5%

BUSINESS investment has suffered the biggest annual plunge since records began more than 40 years ago in a further sign that UK plc has battened down the hatches.

Data from the Office of National Statistics yesterday showed that business investment fell by 4.3 per cent between October and December.

The amount of money firms pumped into their operations slumped 23.5 per cent year-on-year – the largest annual drop since records began in 1967.

News of the fall in investment came as R3, the insolvency industry's trade body, warned that more than a quarter of small businesses believe they will go to the wall if the economy suffers a double-dip recession.

R3 said its poll suggested that, even though the UK emerged from recession at the tail end of 2009, many businesses have been "worn out by the struggle to stay afloat".

Although the quarterly drop in investment had been revised up from an initial 5.8 per cent fall, the figures will be a blow to Alistair Darling, coming just days after the Chancellor's 2.5 billion pledge to help small firms.

Measures announced in the Budget included 94bn of lending from Lloyds and Royal Bank of Scotland, but RBS chairman Sir Philip Hampton cast doubt on Thursday over his bank's ability to meet its tough 50bn target.

Yesterday's business investment figures add to concerns over the health of the retail sector in particular, after the latest CBI distributive trends survey showed that sales growth had slowed, while a host of retailers warned of flagging consumer confidence ahead of potential post-election tax rises.

Experts warned that the "alarming" decline in business investment could store up problems for the economy.

David Kern, chief economist at the British Chambers of Commerce, said: "Although marginally better than the original figures, these numbers still show alarming declines in business investment – with particularly large falls in the manufacturing sector.

"In the face of weak demand and severe pressures, businesses have had little choice but to cut investment and stocks.

"This situation cannot go on indefinitely without damaging consequences."

Vicky Redwood, senior UK economist at Capital Economics, said that the slower pace of decline marginally boosted the chances of an upward revision to fourth-quarter output for the overall economy, but did little to change prospects for investment.

She added: "The fact investment is still falling sharply hardly suggests that firms are about to drive a strong and sustained recovery."