Business investment in the UK: October to December 2021 revised results

• Business investment grew by 1.0% in Quarter 4 (Oct to Dec) 2021, revised up from the first estimate of 0.9%.

• Transport equipment and intellectual property products (IPP) contributed positively to growth in business investment in Quarter 4 while other buildings and structures, and information and communications technology (ICT) equipment and other machinery and equipment fell. 

• Between 2019 and 2020 business investment fell by a revised 11.5%; this was followed by a revised 0.8% increase between 2020 and 2021, leaving business investment 10.8% lower than 2019 pre-coronavirus (COVID-19) pandemic levels.

• Gross fixed capital formation (GFCF) increased by 1.1% in Quarter 4 2021, revised down from the first estimate of 2.2%. Investment in transport equipment and dwellings contributed most to the increase, with falls in other buildings and structures and ICT equipment and other machinery and equipment partially offsetting the increase.

• The level of business investment in Quarter 4 2021 is now 8.6% below where it was pre-coronavirus pandemic in Quarter 4 2019; GFCF levels are only 1.9% below, mainly owing to strong growth from dwellings and government investment. 

• Between 2019 and 2020 GFCF fell by a revised 9.5%, and between 2020 and 2021 GFCF increased by 5.9%, leaving economy-wide investment 4.2% lower than 2019 pre-coronavirus annual levels.

Business investment and our economy-wide measure of gross fixed capital formation (GFCF) both grew in Quarter 4 (Oct to Dec) 2021; business investment increased by 1.0% while GFCF increased by 1.1%. Though both grew similarly in the latest quarter, business investment’s slower return to pre-coronavirus (COVID-19) pandemic levels, compared with that of GFCF, reflects the different patterns of investment by businesses and primarily government observed throughout the coronavirus pandemic.

Figure 1: Business investment’s recovery has lagged behind that of economy-wide gross fixed capital formation (GFCF) since the start of the coronavirus (COVID-19) pandemic

UK business investment, chained volume measure, seasonally adjusted, Quarter 1 (Jan to Mar) 1997 to Quarter 4 (Oct to Dec) 2021

Notes:

1. Q1 refers to Quarter 1 (Jan to Mar), Q2 refers to Quarter 2 (Apr to June), Q3 refers to Quarter 3 (July to Sept) and Q4 refers to Quarter 4 (Oct to Dec).
2. UK business investment, chained volume measure, seasonally adjusted, excluding the reclassification of British Nuclear Fuels (BNFL) in Quarter 2 2005.
3. Quarter 2 2020 is the largest fall on record for gross fixed capital formation excluding the reclassification of British Nuclear Fuels (BNFL) in Quarter 2 2005.

4. Index is reference to Quarter 1 (Jan to Mar) 1997.

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Investment in transport equipment saw its strongest growth since Quarter 3 (Jul to Sept) 2020, contributing 2.0 percentage points to business investment growth. This increased investment partially reflects the ability of businesses to acquire vehicles because of some easing of the semi-conductor shortage, though this continues to be a factor when looking at recent weakness in transport equipment investment. Transport investment can also be volatile because of the particularly large value of some transport items such as ships and aircraft.

Dwellings and government investment has driven the growth in GFCF since Quarter 4 2019 with general government investment 10.4 percentage points higher than the pre-coronavirus (COVID-19) pandemic level. Investment in information and communications technology (ICT) equipment and other machinery and equipment is also above its pre-coronavirus level. The growth in this asset is partly because of firms investing, upgrading and improving, hardware and technology equipment to facilitate hybrid working and adapt to coronavirus restrictions. Transport investment for Quarter 4 2021 remains the weakest asset in terms of returning to pre-coronavirus levels of expenditure.

Our business investment by industry dataset gives a detailed breakdown of business investment by industry.

In Quarter 4 (Oct to Dec) 2021, investment in total “other services” grew by 6.8%, the largest quarter-on-quarter growth of any industry. This provided the largest industry-level contribution to the 1.0% increase in business investment at 3.4 percentage points. At a more detailed industry level, the transportation and storage industries and the information and communication industries contributed most to growth in business investment at 1.6 and 1.4 percentage points respectively.

The transportation and storage industries strong contribution to growth in business investment is largely because of some easing in the semi-conductor shortage and increased ability to acquire new vehicles. However, transport investment can be volatile because of large investment items.

The second industry that contributed most to growth was information and communication. Comments in the Quarterly Acquisitions and Disposals of Capital Assets Survey (QCAS) showed that companies in this industry were carrying out refurbishment projects of offices to facilitate hybrid working, and increased acquisitions and improvement works of computer equipment to replace older systems.

Despite increased investment in the latest quarter, some industries are yet to return to pre-coronavirus levels. Investment by the transportation and storage industries remains 32.5 percentage points below levels of Quarter 4 (Oct to Dec) 2019.

Using data collated by the Organisation for Economic Co-operation and Development (OECD) from relevant national statistical institutes, we can compare gross fixed capital formation (GFCF) within the G7 nations. Figure 5 shows GFCF data for the G7 nations back to Quarter 4 (Oct to Dec) 2019, which is considered the pre-coronavirus (COVID-19) pandemic quarter.

Most countries show a clear cyclical pattern of a decline in investment in the first half of 2020, before recovery in the second half. France and Italy were affected earliest, showing weak GFCF in Quarter 1 (Jan to Mar) 2020, before the UK, France and Italy showed the largest declines in the G7 in 2020 Quarter 2 (Apr to June). However, following this, these three countries then experienced the fastest growth in GFCF in Quarter 3 (July to Sept) 2020.

Since Quarter 4 2020, GFCF growth for each G7 nation has ranged between a positive or negative 5% growth. Italy has maintained these strong periods of growth since Quarter 4 2020 and led the way for all the countries. Countries such as Japan, the US and Germany have not seen as large fluctuations in their growths as the other G7 countries, particularly early on in 2020 and therefore have been closer to the G7 average throughout this time period. Japan had the lowest growth in GFCF in Quarter 4 2021 with a negative growth of 0.75%. All other G7 countries had positive growth in GFCF in Quarter 4 2021 with Italy the largest at 2.8% and the average growth being 0.9%.

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

Revisions

In line with the National Accounts Revisions Policy, the dataset as part of this publication is open to revision back to Quarter 1 (Jan to Mar) 2020. The revisions made in this publication are on account of new survey data, other revised source data, an in-depth seasonal adjustment review and a correction to transport data that was identified post provisional publication.

Changes to this bulletin

All data within this bulletin, unless specified, are presented in chained volume measure (CVM). This means it has the effect of price changes removed (in other words, the data are deflated).

The impact of the coronavirus (COVID-19) on our estimation methods

In Quarter 4 (July to Sept) 2021, the Quarterly Acquisitions and Disposals of Capital Assets Survey (QCAS), one of the largest data sources for gross fixed capital formation (GFCF) and business investment, had a response rate of 71.7%. This compares with an average response rate of 71.1% during 2020, and 82% for 2019 with revised results.

As a result of these challenges, business investment estimates for Quarter 4 2021 are subject to more uncertainty than usual and are likely to have larger than usual revisions in subsequent releases. To mitigate against that reduced response, we reviewed survey imputation methods to address areas of non-response, and where necessary, reviewed our seasonal adjustment parameters where outliers were identified.

Coronavirus data

Our latest data and analysis on the impact of the coronavirus on the UK economy and population are available on a coronavirus page. This is the hub for all coronavirus-related publications, including the fortnightly Business Insights and Conditions Survey (BICS).

The Office for National Statistics (ONS) has released a public statement on coronavirus and the production of statistics. Specific queries should be directed to the Media Relations Office at Media.Relations@ons.gov.uk.