Q1 business investment up but level revised down

Business investment during the first quarter grew by 0.1 per cent on the previous three months but the overall level of investment was revised down from earlier estimates, official statistics showed yesterday.

The figures provide the latest evidence of an economy that appears to have lost considerable momentum in recent months and come as more analysts are forecasting a Bank of England interest rate cut, perhaps as soon as next week.

The small gain compared with a 0.1 per cent quarterly decline published by the Office for National Statistics one month ago and a 0.4 per cent decline in the fourth quarter of 2004 that was originally reported as a 0.2 per cent rise.

The three-month growth rate on a year ago was revised down to 2.5 per cent from 2.9 per cent, driven by downward revisions to investment by public corporations as well as construction.

But while business investment climbed to £28.126 billion from £28.093 billion in the fourth quarter, levels were revised down. Just one month ago, first quarter business investment was estimated at £29.629 billion.

"While investment growth was revised up in Q1, levels were lower than initially reported and the rise in Q1 proved insufficient to reverse the previous quarter's decline," said George Buckley, economist at Deutsche Bank.

"It is the service sector (excluding distribution) alone that kept business investment afloat in the first quarter," MrBuckley said.

Indeed, services investment grew 1.9 per cent on the quarter and 3.8 per cent on a year ago while construction and other production fell by 3.6 per cent on the previous three months and 3.3 per cent on a year ago.

Annual growth in business investment for all of last year was revised down to 3.4 per cent from 5.5 per cent previously, driven by downward revisions to all the main sectors.

On Thursday the ONS revised down its estimate of first quarter economic growth to 0.4 per cent from 0.5 per cent previously. That was driven down by weaker household spending, which at 0.1 per cent barely expanded.