Business investment in the UK: October to December 2019 revised results

• Business investment fell by 0.5%, in volume terms, in Quarter 4 (Oct to Dec) 2019.

• This is the eighth consecutive quarter when information and communication technology (ICT) equipment, other machinery, and equipment has contributed negatively to business investment four-quarter growth; intellectual property products (IPPs) have contributed positively in each of the last 10 quarters.

• When compared with the same quarter a year ago, business investment increased by 1.8%.

• When compared with 2018, business investment increased by 0.6% in 2019.

• Gross fixed capital formation (GFCF), in volume terms, fell by 1.2% in Quarter 4 2019.

• When compared with the same quarter a year ago, GFCF fell by 0.3% in Quarter 4 2019.

• On a sector basis, private sector dwellings made the largest negative contribution to GFCF growth in Quarter 4 2019.

• When compared with 2018, GFCF in 2019 increased by 0.6%.

Business investment fell by 0.5% in Quarter 4 (Oct to Dec) 2019

Business investment fell by 0.5% between Quarter 3 (July to Sept) 2019 and Quarter 4 (Oct to Dec) 2019, following three consecutive quarters of positive growth.

Information and communication technology (ICT) equipment, other machinery, and equipment made the largest contribution to the fall, while transport equipment also contributed negatively. Falls in these assets were partially offset by increases in other buildings and structures and intellectual property products (IPPs). (Figure 1)

The Bank of England, in its Agents’ summary of business conditions for Quarter 4 2019, stated that “investment intentions remained depressed by slower global growth and political uncertainty”, with larger firms and exporters particularly affected. However, Deloitte, in their quarterly CFO Survey, found that businesses reported their biggest increase in optimism in the 11-year history of the survey.

In its January 2020 Monetary Policy Report, the Bank of England highlighted that although Brexit-related uncertainty lessened in Quarter 4 2019, “Intelligence from the Bank’s Agents and aggregate CBI survey data suggests that few companies have materially increased their planned investment spending as yet, but these data include responses from before the election.”

The IHS Markit/CIPS Purchasing Managers Index (PMI) for manufacturing reported reductions in manufacturing output and new orders of investment goods in each month of Quarter 4 2019, linking this to continued uncertainty.

Accountancy firm BDO, in their business trends report, suggested that optimism was at a seven-year low in October 2019 and remained close to that level for the remainder of Quarter 4 2019. The British Chambers of Commerce (BCC), in their Quarterly Economic Survey for Quarter 4 2019, noted that “investment intentions remain weak by historic standards”.

When compared with the same quarter a year ago, business investment grew by 1.8% in Quarter 4 2019. IPPs has contributed positively to business investment four-quarter growth in each of the last 10 quarters. This is particularly notable as it was the only asset that made a positive contribution to business investment four-quarter growth in 2018. Other buildings and structures and transport equipment also grew over this period; however, these increases were partially offset by a fall in ICT equipment, other machinery, and equipment.

The recent growth in other buildings and structures can be partially attributed to investment in new and existing warehousing to increase capacity throughout 2019, which was reported by some survey respondents. The fall in ICT equipment, other machinery, and equipment is the eighth consecutive quarter where this asset has contributed negatively to business investment four-quarter growth. According to the BCC, the balance of manufacturers planning on investing in plant and machinery is at an eight-year low.

The upturn in business investment growth in 2019 was largely explained by increased investment in other buildings and structures. Investment in IPP also contributed positively to business investment growth in 2019, but much of the growth in these two assets was offset by the largest annual fall in investment in ICT equipment, other machinery, and equipment since 2009. The varying contributions of each business investment asset to annual growth have led to changes in the composition of business investment. IPPs and other buildings and structures account for more of business investment than they did in 2017, while ICT equipment, other machinery, and equipment and transport account for less (Figure 3).

The slowdown in business investment growth in 2018 culminated in Quarter 4 2018 seeing the largest four-quarter fall since Quarter 4 2009. The largest negative contributor to four-quarter business investment growth in each quarter of 2018 and Quarter 1 (Jan to Mar) 2019 was transport equipment. Annual gross fixed capital formation (GFCF) data suggest that the fall in investment in transport equipment between 2017 and 2018 occurred largely in the air transport industry, through a decrease in investment in aircraft.

Business investment is now 2.2% above the level seen in Quarter 2 (Apr to June) 2016, the quarter in which the EU referendum took place.

In Quarter 4 (Oct to Dec) 2019, private sector investment in dwellings saw the largest fall since 2012

Private sector investment in dwellings fell by 3.3% in Quarter 4 (Oct to Dec) 2019. This was the largest fall since Quarter 2 (Apr to June) 2012, when investment fell by 4.6%. Compared with the same quarter of the previous year, investment in private sector dwellings fell by 1.9% in Quarter 4 2019. Investment in new dwellings and major repairs and improvements both contributed to this fall (Figure 4).

The Bank of England’s Agents’ summary of business conditions for Quarter 4 2019 reported that the housing market “remained subdued, with activity dampened by uncertainty around the October Brexit deadline and the General Election”. The Bank of England found that, in the new-build market specifically, “increasing incentives were required to sell houses, and smaller builders were slowing their build rates”.

Construction output in Great Britain: December 2019 and new orders October to December 2019, released on 11 February 2019, shows private housing construction work in the three months to December 2019 fell by 1.7%, with both new work and repair and maintenance contributing negatively. We received anecdotal evidence for October 2019 that adverse weather had affected business, though it is difficult to quantify the exact impact on the industry.

These estimates were revised as part of the quarterly national accounts and as such are not consistent with construction data used in this gross fixed capital formation (GFCF) dataset. In addition, there are conceptual and methodological differences between estimates for the construction of private housing and the private sector dwellings series for GFCF. Information can be found in the article, Conceptual and methodological differences between private housing construction output and GFCF private sector dwellings.

In line with the National Accounts Revisions Policy, the open period for revisions is Quarter 1 (Jan to Mar) 2019 to Quarter 4 (Oct to Dec) 2019. Revisions to these periods are largely explained by taking on later source data, alongside revisions to seasonal adjustment. Revisions by sector and asset for gross fixed capital formation (GFCF) can be found in the revisions section of the GFCF by sector and asset dataset accompanying this release, in addition to revision triangles and a real-time database for business investment.

Business investment growth has been revised up by 0.5 percentage points in Quarter 3 (July to Sept) 2019 and Quarter 4 2019, to 0.7% and negative 0.5% respectively. Quarter 1 2019 and Quarter 2 2019 remain unrevised (Figure 7).

GFCF has been revised on average by 0.1 percentage points between Quarter 1 2019 and Quarter 4 2019, with revisions ranging between negative 0.1 percentage points and positive 0.4 percentage points.

Quarter 1 2019

GFCF growth in Quarter 1 2019 has been revised down by 0.1 percentage points to 1.0%. This was largely explained by revisions to the quarterly path of the general government series following improvements to seasonal adjustment. Business investment growth was unrevised.

Quarter 2 2019

Business investment and GFCF growth in Quarter 2 (Apr to June) 2019 were unrevised, but there were some offsetting changes to components of GFCF. A downwards revision to general government was offset by an upwards revision to private sector dwellings.

Quarter 3 2019

Business investment growth in Quarter 3 2019 was revised up by 0.5 percentage points to 0.7%, while GFCF growth was revised up by 0.2 percentage points to 0.5%. This was largely explained by revisions to the other machinery and equipment asset following later survey data from the Quarterly Acquisitions and Disposals of Capital Assets Survey (QCAS) and revisions to seasonal adjustment.

Quarter 4 2019

Business investment growth in Quarter 4 2019 was revised up by 0.5 percentage points to negative 0.5%. This was largely explained by later QCAS data, which particularly affected other buildings and structures and computer software and databases within intellectual property products.

GFCF growth in Quarter 4 2019 was also revised up by 0.4 percentage points to negative 1.2%. In addition to the upwards revision to business investment, revisions to gross domestic product (GDP) balancing adjustments applied to private sector dwellings and private sector transfer costs led to upwards revisions to these components. More detail on the GDP balancing process can be found in the quarterly national accounts.

View all data used in this statistical bulletin on the Related data page.

Business investment

Business investment is a component of gross fixed capital formation (GFCF) by the private sector and public corporations, excluding investment in dwellings and costs of ownership transfer. It is a UK construct and not internationally comparable.

Gross fixed capital formation (GFCF)

GFCF is the total value of a producer’s acquisitions, less disposals, of assets used in the production process for more than one year, plus certain expenditure on services that adds to the value of non-produced assets. It is an internationally recognised concept allowing comparison between countries.

Business investment estimates largely rely on data collected from the Office for National Statistics’ (ONS’) Quarterly Acquisitions and Disposals of Capital Assets Survey (QCAS). The QCAS is sent to around 25,000 companies, which complete the survey online.

Additional data sources for estimates of gross fixed capital formation (GFCF) include:

• private housing construction output, used to estimate private sector dwellings investment

• stamp duty data from HM Revenue and Customs (HMRC) and Registers of Scotland, used as part of estimates of costs of ownership transfer

• HMRC imports and exports of high value (those greater than £1 million) aircraft used to inform estimates of investment in transport equipment for the air transport industry

Quality

More quality and methodology information on strengths, limitations, appropriate uses, and how the data were created is available in the Business investment QMI.

Coronavirus (COVID-19)

In response to the developing coronavirus (COVID-19) pandemic, we are working to ensure that we continue to publish economic statistics. For more information, please see COVID-19 and the production of statistics. In line with the current government guidelines, we are encouraging ONS staff to work from home and to avoid unnecessary travel and social contact. We have an established infrastructure to help mitigate these changes and to ensure we continue to produce economic statistics. We will continue to review our mitigation as events unfold.

Data in this statistical bulletin and accompanying datasets relate to the Quarter 4 (Oct to Dec) 2019 period, before reported cases of COVID-19 in the UK.

GDP balancing adjustments

We have applied larger than usual adjustments to the expenditure approach in Quarter 4 (Oct to Dec) 2019, in part after heightened uncertainty around the impact of the UK’s planned withdrawal from the EU on the timing of activity of businesses.

Bias adjustment

Large capital expenditure tends to be reported later in the data collection period than smaller capital expenditure. This means that larger expenditures are often included in the revised (month three) results but are not reported in time for the provisional (month two) results, leading to a tendency towards upward revisions in the later estimates for business investment and gross fixed capital formation (GFCF).

Following investigation of the impact of this effect, from Quarter 3 (July to Sept) 2013, in the provisional estimate a bias adjustment is introduced to business investment and its components. At the provisional estimate of business investment for Quarter 4 2019, the bias adjustment was positive £781 million. This has been removed in this revised release.

QCAS response rates