Surprise decline in UK business investment

New data from the Office for National Statistics (ONS) found that UK business investment recorded its biggest fall since 2009.

Investment declined for the second quarter running, by 1.4 per cent in Q4 2014 from the previous quarter. The ONS believes falling oil prices may be partly to blame for the drop.

Oil prices have fallen by over half since June 2014, and oil companies have subsequently pulled back on investment in the UK and elsewhere across the globe.

“Given the recent steep fall in oil prices, it might be expected that investment by the oil extraction industry might also fall, as oil production becomes less profitable,” said the ONS.

Earlier this week, industry body Oil and Gas UK said that after investment reached £14.8bn last year, it is forecast to fall to between £9.5bn and £11.3bn in 2015.

Various economists have said overall business investment in the UK could also be affected later in the year by uncertainty regarding the outcome of the general election in May.

In annual terms, investment still increased by 2.1 per cent on the same period a year ago; but it still marks a sharp deceleration from the middle of 2014 when business investment was growing at an annual rate of 11 per cent.

The ONS also confirmed last month’s estimates that the economy grew by 0.5 per cent in Q4 2014, following a rise of 0.7 per cent in Q3 2014.

Howard Archer, of IHS Global Insight, believes the drop could be “sign that companies are adopting a more cautious approach in the face of increased global growth concerns (particularly weakness in the Eurozone) and mounting political uncertainty in the UK as the 2015 general election looms”.

Date published 2 Mar 2015 | Last updated 2 Mar 2015