UK economic growth in Q4 higher than previously thought but business investment falls

The UK economy grew by more by more than previously reported in the final quarter of 2016, but figures also reveal a decline in business investment.

New estimates released on Wednesday by the Office for National Statistics (ONS) show that the UK’s gross domestic product (GDP) grew by 0.7% in the October to December quarter, revised up from the preliminary estimate of 0.6%.

The upward revision was mainly due to a stronger performance by the manufacturing industry.

However, for the whole of 2016 economic growth was weaker than previously thought. The UK economy is now thought to have grown by 1.8% — revised down from the 2% forecast last month. This means that the UK can no longer be considered the fastest-growing major advanced economy last year, as Germany’s economy grew by 1.9% in 2016.

Moreover, separate figures released on Wednesday reveal a slowdown in UK business investment in the fourth quarter, down 1.0% compared with the three months to the end of September.

Across the whole of 2016, investment declined by £2.7bn or 1.5% compared with the previous year — the first annual decrease in business investment since 2009. The ONS attributed the drop to weakness in investment in buildings and structures as well as information and communication technology (ICT) equipment and other machinery and equipment.

Commenting on the figures, Lee Hopley, chief economist at manufacturers’ organisation EEF, said:

“The UK economy is rarely without its weak points and at the end of 2016 it was business investment. Capital expenditure by businesses saw a contraction in the final months of last year contributing the first year-on-year contraction in business investment since 2009. It’s too soon to declare this an worrying omen for 2017, especially as more recent survey indicators have been signalling a more positive trend.”

Nevertheless, businesses are expected to rein in their investment plans as the UK negotiates its departure from the European Union, Reuters reported.

TUC general secretary Frances O’Grady said:

“It’s very worrying to see that business investment is already falling with the challenges of Brexit ahead. If this trend continues, working people will pay the price through weaker wages and fewer jobs.

“Despite a modest boost to public investment last year, UK investment still lags behind the world’s leading industrial nations. With private sector investment in retreat, the Chancellor must focus on closing the gap with our competitors in next month’s budget. This would help protect jobs and wages, and it would give a much needed boost to business confidence.”