Business Investment Down The Pan

8th September 09- Business investment down the pan

The Office for National Statistics (ONS) has reported that business investment fell by 18.4% in the second quarter of 2009 compared to the same period last year to stand at £29.9bn. The result represented the largest annual decline since records began in 1965. Yesterday this diary highlighted the plight of the manufacturing sector and of course, the two subjects of failures of businesses that make things and investment by businesses are entwined.

The ONS cited the unsavoury cocktail of falling profits, poor credit availability, the high cost of capital and weak company liquidity as causal factors for the fall-off of new investment. While the reduction in investment was broadly based, it fell particularly sharply within private sector services and construction.

David Kern, chief economist at the British Chamber of Commerce, commenting on the figures said “The further sharp decline in business investment signals serious threats to Britain’s long-term recovery. In the face of weak demand and mounting financial pressure, businesses have little choice but to cut investment and stock. Unless this trend can be reserved, the long-term productive capacity of the economy will be damaged, and the country will lack the necessary capital stock to sustain a recovery….”

Such fine words from Mr Kern but to state the obvious is one thing, to effect a reversal, quite another. We could always champion key high quality business sectors, form a national bank and make it invest in those sectors rather than print money to buy back Government debt. Make any sense?