Business investment in the UK: January to March 2015 provisional results

• The estimates in this release are short-term indicators of investment in assets, such as dwellings, transport equipment, machinery, buildings and intangible assets. This release covers not only business investment, but asset breakdowns of total gross fixed capital formation (GFCF), of which business investment is one component

• All investment data referred to in this bulletin are estimates of seasonally adjusted chained volume measures. No periods are revised in this release

• In Quarter1 2015, GFCF was estimated to have increased by £1.1 billion (1.5%) to £74.7 billion compared with the previous quarter. This is the highest level since Quarter 4 2007 (£75.8 billion)

• In Quarter 1 2015, business investment was estimated to have increased by £0.8 billion (1.7%) to £45.7 billion compared with the previous quarter. This is the highest level since Quarter 2 2005 (£52.0 billion)

• In Quarter 1 2015, GFCF was estimated to have increased by 3.4% compared with Q1 2014

• In Quarter 1 2015, business investment increased by 3.7% compared with Q1 2014. This was the twentieth consecutive quarter of growth compared with the same quarter of the previous year. This is the longest period of quarter on the same quarter a year ago growth to date

• Changes have been made to the Quarterly Survey of Capital Expenditure for Quarter 1 2015. Clearer instructions have led contributors to indicate some historic misreporting in the asset breakdown. Adjustments have therefore been included to keep the asset series continuous. Further work will be undertaken which may result in changes to the current asset split

The estimates in this release are short-term indicators of investment in non-financial assets in the UK, such as dwellings, transport equipment, machinery, buildings and intellectual property products. This release covers not only business investment, but asset and sector breakdowns of total gross fixed capital formation (GFCF), of which business investment is one component.

Business investment is net investment by private and public corporations, in transport, information, technology and communications (ICT) equipment, other machinery and equipment, cultivated assets, intellectual property products (IPP, which includes investment in software, research and development, artistic originals and mineral exploration), and buildings and other structures. It does not include investment by central or local government, investment in dwellings or the costs associated with the transfer of non-produced assets (such as land). A full sector and asset hierarchy can be found in the background notes. It should be noted that business investment is not an internationally recognised concept and therefore it should not be used to make international comparisons.

All investment data referred to in this bulletin are estimates of seasonally adjusted chained volume measures.

Changes to the quarterly survey of capital expenditure in Q1 2015

As described in the Business Investment, Q4 2014 Revised Results bulletin and the article Changes to the Annual Business Survey, the Quarterly Survey of Capital Expenditure and the Survey into Business Spending on Capital Items, in 2015 (114.3 Kb Pdf) , we have migrated to the Quarterly Acquisitions and Disposals of Capital Assets Survey (QCAS) from the Quarterly Survey of Capital Expenditure (CAPEX) in this release. The main reasons for the changes to the survey are to move to the updated European System of Accounts (ESA) 2010 manual, the international guidance for national accounts.

Several presentational issues have been addressed but the main changes to the survey are:

1. new questions have been added to improve the quality of our estimates and to meet the latest European legislation requirements (ESA 2010)

2. the lower limit of £500 for the value of reported assets has been removed, so all relevant assets (even those below businesses’ Asset Register threshold) should be reported

3. small tools used in production have been included within the definition of GFCF

4. improvements have been made to the questionnaire’s layout with new sections and headings, designed to make completing the questionnaire easier

Further methodological information including upcoming changes for Blue Book 2015

Estimates in this release have been compiled under ESA 2010 concepts and definitions, in compliance with the UK’s legal obligations in producing the National Accounts. Articles are available describing the methodology used to estimate GFCF and the impact of the changes implemented for ESA10 in September 2014.

Several articles explaining the changes that will be implemented in the UK National Accounts (Blue Book) 2015, to be published in October 2015, were published on 19 May 2015. These articles describe changes related to ongoing work to meet ESA 1995 requirements. The changes which impact GFCF and its components are spending on repairs and maintenance of dwellings and exhaustiveness. A comprehensive list of all published articles relating to changes to the UK National Accounts (Blue Book) can be found on the website. This list will be updated when new articles are published.

Impact of ESA 1995 Changes on Current Price Gross National Income Estimates, 2002 to 2010 19 May 2015

Methodological improvements to National Accounts for Blue Book 2015: Exhaustiveness (225.9 Kb Pdf) 19 May 2015

Methodological improvements to National Accounts for Blue Book 2015: Vehicle Registration Tax, Treatment of Roads, and Spending on Repairs and Maintenance of Dwellings (294.7 Kb Pdf) 19 May 2015

Changes to National Accounts for Blue Book 2015: the deflation of investment in software 26 Mar 2015

Investment - impact analysis of changes to the estimation of gross fixed capital formation and business investment for Blue Book 2014 (918.4 Kb Pdf) 30 Sept 2014

Changes to the Annual Business Survey, the Quarterly Survey of Capital Expenditure and the Survey into Business Spending on Capital Items, in 2015 (114.3 Kb Pdf) 22 Aug 2014

Gross Fixed Capital Formation and Business Investment – Impact of ESA10 Changes on Volume Measures (195.6 Kb Pdf) 30 June 2014

How Construction Price Indices are Used in Construction Statistics and Gross Fixed Capital Formation (80.7 Kb Pdf) 19 June 2014

Construction price indices: improvements 19 June 2014

Measuring and capitalising research & development in the UK National Accounts (349.1 Kb Pdf) 10 June 2014

Implementation framework for Research and Development in the United Kingdom National Accounts (206.7 Kb Pdf) 10 June 2014

Impact of ESA10 changes on current price GDP estimates 10 June 2014

Transition to ESA10: capitalising government spending on military weapons (179 Kb Pdf) 10 June 2014

Gross Fixed Capital Formation (Investment) - Changes for Blue Book 2014 (excluding ESA10) (157.8 Kb Pdf) 29 May 2014

Impact of ESA95 changes on current price GDP estimates 29 May 2014

Revised methodology and sources as a result of addressing Gross National Income reservations (105.1 Kb Pdf) 29 May 2014

Notes for Changes to the quarterly survey of capital expenditure and other methodological information

1. Q1 = Quarter 1 (January to March), Q2 = Quarter 2 (April to June), Q3 = Quarter 3 (July to September), Q4 = Quarter 4 (October to December)

Adjustments

As a result of the changes to the survey, and the timing of Easter, response has been lower than expected at 67%, when compared with an average of 78% in 2014.

Large capital expenditure tends to be reported later in the data collection period than smaller expenditure. This means that larger expenditures are often included in the revised (month 3) results, but are not reported in time for the provisional (month 2) results, leading to a tendency towards upwards revisions in the later estimates for business investment and GFCF. Following investigation of the impact of this effect, from Q3 2013, a bias adjustment was introduced to GFCF and its components in the provisional estimate.

A bias adjustment of £1.5 billion for Q1 2015 has been included in this release. This is larger than in recent quarters to allow for later returns of larger capital items and the lower survey response rate. This adjustment will be removed in the revised results when the survey response rates improve. Users should note that the bias adjustment is a best estimate of the QCAS and the estimate may still be revised either up or down. Therefore, GFCF and business investment will be subject to revision in the Q1 2015 revised (month 3) release. The bias adjustment is intended to reduce the average size of revisions over time. It is not possible to ascertain the direction of any such revisions.

In improving the survey through clearer instructions, contributors have indicated that there has been some historic misreporting in the asset breakdown. Adjustments have therefore been included to keep the asset series continuous. Further work will be undertaken between 2015 Q1 provisional and revised estimates which may result in changes to the current asset split.

Forecast data

Not all data required for the compilation of GFCF and its components are available for the latest period at the time of publication. For these components, the latest period is forecast. In this release this includes government investment, investment in new dwellings and improvements to dwellings, investment in research and development, and investment in artistic originals.

Revisions

No periods have been revised in this release.

Survey response rates

Table 1 presents the provisional (month 2) response rates for QCAS. The estimates in this release are based on the Q1 2015 month 2 (provisional) survey results.

Notes for Adjustments, revisions and response rates

1. Q1 = Quarter 1 (January to March), Q2 = Quarter 2 (April to June), Q3 = Quarter 3 (July to September), Q4 = Quarter 4 (October to December)

Business investment grew by an estimated £0.8 billion (1.7%) in Q1 2015, compared with Q4 2014. The Bank of England Inflation Report for May 2015 highlighted several factors which may have supported business investment growth. This included the low cost of finance and a recovery in demand for products. Financial conditions have been supportive of business investment, as low interest rates and low yields on corporate bonds have held the cost of borrowing down, likely making capital spending more attractive. In Q1 2015, net external finance raised was £8.3 billion, slightly less than the average for the latter half of 2014, but substantially more than during the economic downturn in 2008 and 2009.

The Credit Conditions’ Survey for Q1 2015 showed that both the demand for and availability of credit to large corporations had increased. The Bank of England’s Trends in Lending publication showed that net lending on the all-currency measure was £2.6 billion between December and February, while in January to March of 2015 loans to private non-financial corporations grew by 0.6% (£4.3 billion).

Investment intentions from survey balances of expected orders suggest that the demand outlook remains favourable. Businesses appear to be operating around normal levels of capacity, which means that investment may be required to satisfy demand. The Inflation Report noted that survey indicators of investment intentions remained above average levels in Q1 2015. This is despite a slight decrease in recent months.

Notes for Economic background

1. Q1 = Quarter 1 (January to March), Q2 = Quarter 2 (April to June), Q3 = Quarter 3 (July to September), Q4 = Quarter 4 (October to December)

Figure 4 shows a large spike in business investment Q2 2005. This is due to the transfer of British Nuclear Fuels Ltd (BNFL). In April 2005, nuclear reactors were transferred from BNFL to the Nuclear Decommissioning Authority (NDA). BNFL is classified as a public corporation in National Accounts, while the NDA is a central government body. The business investment series includes investment by public corporations but not government spending, with the positive spike therefore reflecting the £15.6 billion transfer. More information on the transfer of BNFL can be found in the background notes under section ‘3. Further information on methodology’.

Summary tables

Total gross fixed capital formation (GFCF) increased by an estimated £1.1 billion (1.5%) in Q1 2015 compared with the previous quarter. In Q1 2015, business investment saw an increase when compared with the previous quarter, rising by an estimated £0.8 billion (1.7%). This was offset by a decrease in investment in dwellings by public corporations of an estimated £0.2 billion (19.5%). This was the biggest decrease for this sector since Q3 1999 when there was a decrease of an estimated £0.4 billion (44.2%).

In Q1 2015, intellectual property products (IPP) saw the largest level increase, rising by an estimated £0.6 billion (3.8%), the highest level for IPP since the time series began in Q1 1997. Transport equipment saw the second highest level increase of an estimated £0.5 billion (16.8%). These increases were partially offset by a decrease in ICT equipment and other machinery and equipment of an estimated £0.4 billion (2.4%). All assets showed positive growth of at least 2.0% compared with the same quarter of the previous year.

Notes for Gross fixed capital formation and business investment

1. Q1 = Quarter 1 (January to March), Q2 = Quarter 2 (April to June), Q3 = Quarter 3 (July to September), Q4 = Quarter 4 (October to December)

Gross fixed capital formation by detailed industry and asset (245.5 Kb Excel sheet) Detailed annual breakdown of gross fixed capital formation in current prices, chained volume measures, non-seasonally adjusted and seasonally adjusted for 1997 to 2013. Consistent with the UK Annual National Accounts (Blue Book) 2014.

UK National Accounts (Blue Book) Chapter 9 (113.5 Kb Excel sheet) Gross fixed capital formation by institutional sectors and assets, in current prices, chained volume measures, non-seasonally adjusted and seasonally adjusted. Annually from 1987 to 2014, total gross fixed capital formation data is available back to 1948. Quarterly from 1997 Q1 – 2014 Q4.

Business investment by industry and asset Detailed breakdown of business investment by industry and asset, in current prices, chained volume measures, non-seasonally adjusted and seasonally adjusted. Annually for 1997 to 2014 and quarterly for 1997 Q1 to 2014 Q4.

UK Economic Accounts Gross fixed capital formation by institutional sector in current prices, not seasonally adjusted and seasonally adjusted. Annually for 1997 to 2014 and quarterly for 1997 Q1 to 2014 Q4.

ONS also publishes additional analyses of gross fixed capital formation, business investment, and the Quarterly Survey of Capital Expenditure, which have been created in response to ad hoc user requests. These are available to download free from the ONS website. Below is a list of the most recent ad hoc requests, together with a link to the web pages from which they can be downloaded. Enquiries about ad hoc requests may be made to gcf@ons.gov.uk.

Note: all datasets below have been updated from Q1 1997 to be consistent with the UK Annual National Accounts (Blue Book) 2014.

Research and development price index for gross fixed capital formation (33 Kb Excel sheet) This time series is derived from the Research and Development dataset and is based on actual current price values up to and including 2012, all subsequent periods have been forecasted using X-13-ARIMA-SEATS, a seasonal adjustment model. The base year for this analysis is 2005. This price index (deflator) is calculated using a weighted labour, capital and material prices and excludes a productivity adjustment. Data has been extracted from the 2014 Q4 dataset.

Regional gross fixed capital formation, 2000-2012 (110 Kb Excel sheet) Regional gross fixed capital formation by industry sector at NUTS1 and NUTS2 regional breakdown levels. The Nomenclature of Units for Territorial Statistics (NUTS) was created by the European Office for Statistics (Eurostat) as a single hierarchical classification of spatial units used for statistical production across the European Union (EU). NUTS1 consists of Wales, Scotland, Northern Ireland and nine English regions. NUTS2 consists of 37 areas which are mainly groups of counties and unitary authorities. Annually from 2000 to 2012.

Gross fixed capital formation quarterly weapons analysis (181.5 Kb Excel sheet) Quarterly GFCF data relating to spending on weapons systems. Q1 1997 Q1 to Q4 2014. Consistent with Business Investment - Q4 2014 Revised Results.

Private sector investment in computer hardware (38 Kb Excel sheet) A time series of investment in computer hardware by the private sector broken down by industry; current price, not seasonally adjusted. Q1 1997 to Q4 2014. Consistent with Business Investment - Q4 2014 Revised Results.

Total business investment and general government data excluding British Nuclear Fuels (BNFL) in 2005 Q2 (48 Kb Excel sheet) Gross fixed capital formation estimates for total Business Investment and General Government, excluding British Nuclear Fuels (BNFL) in Q2 2005; current price, chained volume measure, seasonally adjusted, not seasonally adjusted. Q1 1997 to Q4 2014. Consistent with Business Investment - Q4 2014 Revised Results.

Quarterly capital expenditure and survey populations by employment size bands (33.5 Kb Excel sheet) Estimates from the Quarterly Survey of Capital Expenditure broken down by employment size bands for manufacturing and non-manufacturing industries. A breakdown of survey populations by employment size bands is also included. Current price, not seasonally adjusted. Q1 2012 to Q3 2014. Consistent with Business Investment - Q3 2014 Revised Results.

Total gross fixed capital formation industry split for purchased software, own-account software, mineral exploration and artistic originals (1.02 Mb Excel sheet) Gross fixed capital formation estimates for total GFCF industry split for purchased software, own-account software, mineral exploration and artistic originals; current price, not seasonally adjusted. Q1 1997 to Q4 2014. Consistent with Business Investment - Q4 2014 Revised Results.

Gross fixed capital formation asset ‘private sector dwellings’ broken down to its components ‘dwellings new’ and ‘dwellings improvements’ (45.5 Kb Excel sheet) Gross fixed capital formation estimates for private sector new dwellings and private sector new dwellings and private sector improvements to dwellings; current price, chained volume measure, seasonally adjusted. Q1 1997 to Q4 2014. Consistent with Business Investment - Q4 2014 Provisional Results.

Gross fixed capital formation assets new dwellings (excluding land) and transfer costs of non-produced assets for households and non-profit institutions serving households sectors (32 Kb Excel sheet) Gross fixed capital formation data for new dwellings (excluding land) and costs associated with the transfer of non-produced assets for the households and non-profit institutions serving households sector. The series is in current price, not seasonally adjusted terms. Q1 1997 to Q4 2014. Consistent with Business Investment - Q4 2014 Revised Results.

Capital expenditure (Capex) investment made by energy industries (35 Kb Excel sheet) Total net (acquisitions less disposals) investment by industry for energy industries in current price, not seasonally adjusted terms. Quarterly from Q1 2006 to Q4 2014. Consistent with Business Investment - Q4 2014 Revised Results.

Quarterly capital expenditure estimates, by industry sector and sizeband (139.5 Kb Excel sheet) Quarterly estimates from the Quarterly Survey of Capital Expenditure, net expenditure, current prices, not seasonally adjusted. Q1 2011 to Q4 2014. Consistent with Business Investment - Q4 2014 Revised Results.

Net investment by industry sector and asset from the quarterly survey of capital expenditure (130 Kb Excel sheet) Quarterly estimates from the Quarterly Survey of Capital Expenditure, bench marked to the Annual Business Survey results for net investment by asset and industry sector. Current prices, not seasonally adjusted. Q1 1997 to Q4 2014. Consistent with Business Investment - Q4 2014 Revised Results.

Quarterly capital expenditure; acquisitions and disposals by industry and major asset type (1.49 Mb Excel sheet) A time series of estimates from the Quarterly Survey of Capital Expenditure, broken down by industry, asset and acquisitions/disposals; current price not seasonally adjusted.

Quarterly Survey of Capital Expenditure – proportion of businesses in the survey sample which were foreign subsidiaries, 2011 to 2015 (30.5 Kb Excel sheet) The percentage of businesses in the Quarterly Survey of Capital Expenditure (Capex) which are foreign subsidiaries, 2011 to 2015.

Notes for Where to find more of our data

1. Q1 = Quarter 1 (January to March), Q2 = Quarter 2 (April to June), Q3 = Quarter 3 (July to September), Q4 = Quarter 4 (October to December)