Business investment in the UK: July to September 2017 provisional results

• Gross fixed capital formation (GFCF), in volume terms, was estimated to have increased by 0.2% to £81.4 billion in Quarter 3 (July to Sept) 2017 from £81.2 billion in Quarter 2 (Apr to June) 2017.

• Business investment was estimated to have increased by 0.2% to £45.8 billion in Quarter 3 2017 from £45.7 billion in Quarter 2 2017.

• Between Quarter 3 2016 and Quarter 3 2017, GFCF was estimated to have increased by 1.8%, from £80.0 billion and business investment was estimated to have increased by 1.3%.

• The assets that contributed to GFCF growth between Quarter 2 2017 and Quarter 3 2017 were intellectual property products and dwellings.

• The sectors contributing to GFCF growth over the same period were business investment, public corporations dwellings and private sector dwellings.

The estimates in this release are short-term indicators of investment in non-financial assets in the UK, such as dwellings (residential buildings), transport equipment (planes, trains and automobiles), machinery (electrical equipment), buildings (non-residential buildings and roads) and intellectual property products (assets without physical properties – formerly known as intangibles). 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. These include investments in transport, information and communication technology (ICT) equipment, other machinery and equipment, cultivated assets (such as livestock and vineyards), intellectual property products (IPP, which includes investment in software, research and development, artistic originals and mineral exploration), and other buildings and structures.

Business investment 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). Business investment is not an internationally recognised concept and it should not be used to make international comparisons, however, GFCF is an internationally recognised standard and is therefore internationally comparable. Please see A short guide to GFCF and business investment for more detailed information, including asset and sector hierarchies.

All investment data referred to in this bulletin are estimates of seasonally adjusted chained volume measures. To see a time series of the data please use our time series datasets.

Between Quarter 2 (Apr to June) 2017 and Quarter 3 (July to Sept) 2017, gross fixed capital formation (GFCF) increased by 0.2%. On a sector basis, business investment, public corporations dwellings and private sector dwellings all contributed 0.1 percentage points to overall GFCF growth (Figure 1). The largest negative contributor to GFCF growth was public corporations transfer costs, which contributed negative 0.1 percentage points over the same period.

Between Quarter 3 2016 and Quarter 3 2017, GFCF increased by 1.8%. The largest increases came from business investment and private sector dwellings, which each contributed 0.7 percentage points to overall GFCF growth. Smaller contributions came from private sector transfer costs and public corporations dwellings, which contributed 0.3 and 0.2 percentage points respectively. The only sector to provide a negative contribution over the period was general government, which contributed negative 0.1 percentage points to the growth in GFCF.

On an asset basis, the largest contributor to growth in GFCF between Quarter 2 (Apr to June) 2017 and Quarter 3 (July to Sept) 2017 was intellectual property products (IPP), which contributed 0.4 percentage points (Figure 2). More specifically, this is due to increases seen in software data. The only other positive contribution came from dwellings, which contributed 0.2 percentage points across the same period.

These increases were partially offset by falls in other buildings and structures and transfer costs, which contributed negative 0.2 percentage points, and information and communications technology (ICT) equipment and other machinery and equipment, which contributed negative 0.1 percentage points. Transport equipment was broadly unchanged.

The 1.8% quarter on same quarter a year ago increase in GFCF for Quarter 3 2017 saw positive contributions from other buildings and structures and transfer costs, along with dwellings, intellectual property products, and ICT equipment and other machinery and equipment. The only negative contribution came from transport equipment, which contributed 1.1 percentage points. This is due to particularly strong investment in transport seen in Quarter 3 2016.

Gross fixed capital formation (GFCF) is now 8.0% above the pre-economic downturn peak of Quarter 1 (Jan to Mar) 2008 and 31.5% above the level seen at the trough of the financial crisis in Quarter 2 (Apr to June) 2009.

GFCF has grown positively for the last eight quarters, with the last negative quarter-on-quarter growth being recorded in Quarter 3 (July to Sept) 2015. However, growth in GFCF has been modest since Quarter 4 (Oct to Dec) 2016. The quarter-on-quarter growth in GFCF averaged 0.9% between Quarter 4 2015 and Quarter 3 2016, but has since fallen to an average of 0.4% from Quarter 4 2016 to Quarter 3 2017. Growth seen in Quarter 1 2017 was driven by private sector dwellings and business investment, while the growth in Quarter 2 2017 was driven by the general government sector.

For the calendar year of 2016, GFCF increased by 1.3%, the weakest growth for a calendar year since 2009. Total GFCF growth has been slowing since 2014. Quarter on same quarter a year ago growth averaged 7.2% in 2014, fell to 2.8% in 2015 and then fell further to 1.4% for 2016.

Developments in the housing market can be an important indicator of investment and wider activity in the economy. Construction fell by 0.9% in the three months to June 2017 but “remains at relatively high levels” (see Construction output in Great Britain: September 2017 for more information). This is driven mainly by a decrease in repair and maintenance, which fell by 1.4%, and all new work, which fell by 0.7%. However, both public and private new housing have increased across the period, which is reflected in the 0.7% increase in dwellings data.

Business investment has experienced modest growth since Quarter 3 (July to Sept) 2015 (Figure 4). Business investment in 2016 saw two consecutive quarters of positive growth in Quarter 2 (Apr to June) 2016 (0.9%) and Quarter 3 (July to Sept) 2016 (1.4%) and two quarters of slightly negative growth in Quarter 1 2016 (negative 0.1%) and Quarter 4 (Oct to Dec) 2016 (negative 0.1%). For the first three quarters of 2017, business investment growth has remained positive but subdued, which mirrors the trend seen in gross fixed capital formation.

The assets that contributed positively to business investment between Quarter 2 (Apr to June) 2017 and Quarter 3 (July to Sept) 2017 were intellectual property products (IPP) and other buildings and structures. These two assets contributed 0.6 and 0.4 percentage points to growth respectively. These increases, however, were partially offset by a fall in information and communication technology (ICT) equipment and other machinery and equipment, which left business investment growing by 0.2%.

Business investment grew by 1.3% when compared with Quarter 3 2016. Other buildings and structures was the largest contributor to growth, at 2.3 percentage points. The other large contributor to growth was IPP, which contributed 1.1 percentage points. These increases were partially offset by a large fall in transport equipment in the same period, which contributed negative 1.9 percentage points to business investment growth. This is due to particularly strong investment in transport seen in Quarter 3 2016.

The Bank of England, in its most recent Agents’ summary of business conditions (PDF, 628KB), stated that investment intentions had “softened somewhat in services”. This is in response to a perceived subdued outlook for consumer demand. It is also noted that depreciation in sterling had begun to encourage a modest rebalancing towards exports, supporting business investment. However, future trading relationship uncertainties “continued to deter investment for some firms”. In its most recent inflation report (PDF, 3.72MB), the Bank of England also states that sterling’s depreciation is likely to increase the cost of investment for most firms, as investment is relatively import intensive.

Another important factor to consider when looking at business investment is the availability or supply of credit. In the most recent Bank of England Credit Conditions Review (PDF, 1.72MB), the supply of credit to firms “remains favourable”, however, the report does note that there are some signs that it may have tightened slightly in the past few months for small firms. The availability of credit to corporate firms was found to be broadly unchanged over the past two quarters, with no change expected for Quarter 4 (Oct to Dec) 2017.

Corporate demand for credit was found to be “somewhat subdued across firms of all sizes”. It is then noted to have changed little over the past six months, however. Lenders reported weaker demand for credit in Quarter 3 (July to Sept) 2017 and demand for finance has remained “muted” in recent months.

In the revised Business investment release for Quarter 3 (July to Sept) 2017, to be published Friday 22 December 2017, we will include an international comparison of gross fixed capital formation (GFCF). This will be based on quarterly levels of investment between Quarter 1 (Jan to Mar) 2008 and Quarter 3 (July to Sept) 2017. This international comparison will be included at each revised Business investment release and follows on from the article An international comparison of gross fixed capital formation published in November 2017.

The Business investment Quality and Methodology Information (QMI) report contains important information on:

• the strengths and limitations of the data and how it compares with related data

• uses and users

• how the output was created

• the quality of the output including the accuracy of the data

The changes signposted in this bulletin have not yet been reflected in either the Quarterly Acquisitions and Disposals of Capital Assets Survey QMI or the Business investment QMI, but changes will be incorporated into revised QMIs in the future.

In February 2017, we introduced an improved gross fixed capital formation (GFCF) estimation system, which incorporated methodological changes including improved deflation and seasonal adjustment. A data impact assessment of the new GFCF system for the periods Quarter 1 (Jan to Mar) 2016 to Quarter 3 (July to Sept) 2016 can be found in an accompanying article: Gross fixed capital formation (GFCF) new system deployment and data impact assessment. Further information on the methods changes introduced in the new GFCF estimation system can be found in the article Changes to the Gross Fixed Capital Formation methodology and processing.

Adjustments

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 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 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. The bias adjustment for this quarter was £0.6 billion.

Survey response rates

Table 3 presents the provisional (month 2) and revised (month 3) response rates for the Quarterly Acquisitions and Disposals of Capital Assets Survey (QCAS). The estimates in this release are based on the Quarter 3 (July to Sept) 2017 provisional survey results.

International business investment comparisons are not available on a like-for-like basis, as the compilation of European statistics on business investment differs from the data provided within this release. However, European estimates of business investment provided by Eurostat, the European statistical office, can be found on the Eurostat website.

Business investment in the UK accounts for over half of total gross fixed capital formation (GFCF).

The GSS Business Statistics – interactive user guide is an interactive tool to help you find what business and economic statistics are available and choose the right data for your needs.

We publish the following statistical releases, which provide complementary information on UK business and economic performance:

• Profitability of UK companies – quarterly data on capital employed by private non-financial corporations (PNFCs); contains annual, net and gross rates of return (expressed as percentages) on capital used by PNFCs

• Quarterly national accounts – includes UK data on GFCF and changes in inventories

• UK Economic Accounts – quarterly detailed estimates of national product, income and expenditure, UK Sector Accounts and UK Balance of Payments, including data on GFCF

• UK National Accounts: the Blue Book – annual publication of the UK National Accounts, including data on GFCF

• Retail sales – monthly estimate of UK retail sales

• UK manufacturers' sales by product (PRODCOM) – annual output by manufacturers

• Labour market statistics – monthly data on employment, unemployment, economic inactivity, claimant count, average earnings, labour productivity, vacancies and labour disputes

• Business demography – annual statistics on UK business births, deaths and survival