Business investment in the UK: October to December 2015 provisional results

Estimates of short-term indicators of investment in non-financial assets; business investment and asset and sector breakdowns of total gross fixed capital formation.

This is not the latest release. View latest release

24 February 2016

An error has been identified during further quality assurance of the GFCF dataset published as part of our annual Blue Book publication on 30 September 2015. The affected series are NPEL, L636, NPQT, DLWL, DLWO, DLWT, NPEN, L62K, NPQR, DLWJ, DLWM, DLWQ, NPEK, L62T, NPQS, TLPX, TLPW, EQED, NPEM, L5ZQ, NPQX, DLWZ, DLXI, EQEC and their associated growth rate series. Higher level aggregates including Gross Domestic Product are also affected.

Data will be revised and fully incorporated into the GFCF and GDP estimates in the Blue Book consistent Quarterly National Accounts release to be published 30 June 2016.

Further detail on the expected impact on GFCF and GDP estimates will be provided in the articles listed - 'Impact on GDP Current Price annual estimates 1997-2011' published 25 February 2016 - 'Impact on GDP Chained Volume Measure annual estimates 1997-2011' to be published 23 March 2016 - 'Impact on GDP Current Price and Chained Volume Measure quarterly and annual estimates 1997-2014' to be published 20 May 2016

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Cyswllt:
Email Alison McCrae

Dyddiad y datganiad:
25 February 2016

Cyhoeddiad nesaf:
31 March 2016

1. Main points

Gross Fixed Capital Formation (GFCF) in volume terms was estimated to have fallen by 0.1% to £77.0 billion between Quarter 3 (July to Sept) 2015 and Quarter 4 (Oct to Dec) 2015.

Between Quarter 3 2015 and Quarter 4 2015, business investment in volume terms, was estimated to have decreased by 2.1% to £43.1 billion, a fall of £0.9 billion.

Between Quarter 4 2014 and Quarter 4 2015, GFCF was estimated to have increased by 2.7%.

Business investment was estimated to have increased by 2.4% between Quarter 4 2014 and Quarter 4 2015.

Business investment growth between 2014 and 2015 is estimated to be 4.7%, an increase of £7.9 billion.

The earliest period being revised in this release is Quarter 1 (Jan to Mar) 2015.

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2. About this release

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, these include investments 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)
  • 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. Note 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.

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3. Changes to the Quarterly Survey of Capital Expenditure and methodological information

Changes to the Quarterly Survey of Capital Expenditure in Quarter 1 (Jan to Mar) 2015

As described in the Business Investment, Quarter 4 (Oct to Dec) 2014 Revised Results bulletin and in 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 moved to the Quarterly Acquisitions and Disposals of Capital Assets Survey (QCAS) from the Quarterly Survey of Capital Expenditure (CAPEX). The main reason was to move to the updated European System of Accounts (ESA) 2010 manual, the international guidance for national accounts.

The main changes to the survey are:

  • adding new questions to improve the quality of our estimates and to meet the latest European legislation requirements (ESA 2010)
  • removing the lower limit of £500 for the value of reported assets, so all relevant assets (even those below businesses’ Asset Register threshold) can be reported- including small tools used in production in the definition of GFCF
  • improving the questionnaire’s layout, including new sections and headings, to make completing the questionnaire easier

The data from the new questions will not be included in estimates of GFCF and its components until 2017, when there will be 2 years of data available for quality assurance.

Further methodological information including changes to the UK National Accounts

On 24 February 2016 we published an article describing the impact on GDP current price annual estimates 1997-2011.

On 19 May 2015 we published several articles explaining the changes that were implemented in the UK National Accounts (Blue Book) 2015, published 30 October 2015. These articles describe changes related to ongoing work to meet ESA 1995 requirements. These include changes that impact GFCF and its components, specifically spending on repairs and maintenance of dwellings and exhaustiveness. There is a comprehensive list of all published articles relating to changes to the UK National Accounts (Blue Book).

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.

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4. Gross fixed capital formation and business investment

Business investment in Quarter 4 (Oct to Dec) 2015 has fallen by 2.1% to £43.1 billion when compared with Quarter 3 (July to Sept) 2015. This fall follows consecutive periods of growth (0.9% in Quarter 2 (Apr to June) 2015 and 1.2% in Quarter 3 (July to Sept) 2015) and takes business investment back to the level recorded in Quarter 1 (Jan to Mar) 2015. The fall in business investment has been driven by a larger volume of asset disposals compared with previous quarters, particularly in transport assets. It is the largest fall since Quarter 1 2014 (3.4%).

Annual business investment grew by 4.7% between 2014 and 2015, an increase in level of £7.9 billion. This is the largest £ billion increase since 2010 (£7.9 billion). The 2015 level of £173.7 billion is the highest on record.

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5. Summary tables

In Quarter 4 (Oct to Dec) 2015, total gross fixed capital formation decreased by an estimated 0.1% to £77.0 billion, compared with the previous quarter. Business investment decreased by 2.1%, falling by an estimated £0.9 billion. These decreases were partially offset by an increase in private sector dwellings of an estimated £0.4 billion (2.7%).

In Quarter 4 (Oct to Dec) 2015, other buildings and structures and transfer costs saw the largest level decrease, falling by an estimated 3.0% to £23.8 billion. Transport equipment saw the second highest decrease, falling by an estimated 13.6% to £3.3 billion. These decreases were partially offset by an increase in dwellings of an estimated 3.7% to £17.2 billion.

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6. Economic background

Gross fixed capital formation (GFCF) increased by 2.7% in the final quarter (Oct to Dec) of 2015 when compared with the same quarter in 2014 and increased by 4.2% between 2014 and 2015. It remains higher than the pre-downturn annual average growth (Quarter 1 (Jan to Mar) 1998 to Quarter 4 (Oct to Dec) 2007) of 3.2%.

Business investment increased by 2.4% in Quarter 4 (Oct to Dec) 2015 when compared with the same quarter in 2014, the lowest growth rate since Quarter 2 (Apr to June) 2013. Business investment as a proportion of GDP fell by a quarter of a per cent to 9.6% in Quarter 4 2015. The Bank of England’s (BoE) Inflation Report points out the fall in investment in the oil extraction industry, which fell by around 20% between Quarter 2 (Apr to June) 2014 and Quarter 3 (July to Sept) 2015. This was due in part to the fall in oil prices. Despite the moderation in business investment growth towards the end of 2015, year on year business investment increased by 4.7% and is still significantly higher than the pre-downturn annual average growth of 2.5% (1998 to 2007). According to the BoE Inflation Report, one driver of this strength is continued growth in demand over the past few years and a consequent desire to increase capacity to fulfil it. The Agents' Summary of Business Conditions also points out that competition among banks has continued to lower the cost of corporate credit.

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7. Where to find more of our data

We also publish additional analyses of GFCF, business investment, and the Quarterly Acquisitions and Disposals of Capital Assets Survey, which have been created in response to ad hoc user requests. These are available to download free from our website. Enquiries about ad hoc requests may be made to gcf@ons.gov.uk.

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8. Adjustments, revisions and response rates

Adjustments

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 Quarter 3 (July to Sept) 2013, a bias adjustment was introduced to GFCF and its components in the provisional estimate.

A bias adjustment of £1.2 billion for Quarter 4 (Oct to Dec) 2015 has been included in this release. This adjustment will be reassessed 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 Quarter 4 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.

The Quarterly Survey of Capital Expenditure has been improved by adding clearer instructions. As detailed in the provisional Quarter 1 (Jan to Mar) 2015 business investment release, feedback from some respondents indicated that they had been misreporting their asset breakdown and were correcting this on the new questionnaire. We found that some respondents were reporting new construction work (NCW) as other capital equipment (OCE). From Quarter 1 (Jan to Mar) 2015, respondents to the survey are now reporting more in new construction work at the expense of other capital equipment. In order to remain consistent with the previous data, we have made some adjustments to the assets in the current price series in Quarter 1, Quarter 2 (Apr to June) 2015 and Quarter 3 (July to Sept) 2015. These adjustments are outlined in Table 2.

Revisions

Data in this release have been revised from Quarter 1 (Jan to Mar) 2015 to Quarter 3 (July to Sept) 2015.

The main reason for the revisions seen in this release is the impact on seasonal adjustment of adding the final quarter of the year – when the final quarter is added, the seasonal adjustment annual sum of the quarters is bench marked to equal the not seasonally adjusted annual total.

Revisions can be found in the datasets with this release.

Survey response rates

Table 3 presents the provisional (month 2, second estimate of GDP)) response rates for the Quarterly Acquisitions and Disposals of Capital Assets Survey (QCAS). The estimates in this release are based on the Quarter 4 (Oct to Dec) 2015 month 2 (provisional) survey results

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9 .Background notes

  1. Understanding the data

    Short guide to business investment

    Gross fixed capital formation (GFCF) is used in the compilation of the UK National Accounts’ expenditure measure of the Second Estimate of Gross Domestic Product (GDP) at month 2 and the Quarterly National Accounts (QNA) at each calendar quarter. It is an estimate of net capital expenditure by both the public and private sectors. Examples of capital expenditure include spending on machinery and plant, transport equipment, software, new dwellings and other buildings, and major improvements to existing buildings and structures, such as roads. The additional assets research and development and military weapons systems were introduced in the Quarter 2 (Apr to June) 2014 Revised Results release, published November 2014, consistent with the European System of Accounts 2010, and with the UK Annual National Accounts (Blue Book) 2014.

    Business investment estimates are a short-term indicator of net capital expenditure by businesses within the UK, at current prices and chained volume measures, both seasonally and not seasonally adjusted. Business investment is one component of GFCF. Business investment estimates exclude expenditure on dwellings and the costs associated with the transfer of ownership of non-produced assets, and capital expenditure by local and central government.

    Interpreting the data

    When making comparisons it is recommended that users focus on chained volume, seasonally adjusted, estimates as these show underlying movements rather than seasonal movements, and have the effect of changes in prices removed.

    Use of the data

    We use the estimates from this release are used by the ONS, in the compilation of the UK National Accounts, the Bank of England and Her Majesty’s Treasury to monitor economic performance and inform monetary and fiscal policy decisions. Business investment is also used by other government departments, such as the Department for Business, Innovation and Skills. In addition, these estimates are frequently used by the business, education and research communities, the media and the general public.

  2. Forthcoming changes

    An error has been identified during further quality assurance of the GFCF dataset published as part of our annual Blue Book publication on 30 September 2015. The affected series are NPEL, L636, NPQT, DLWL, DLWO, DLWT, NPEN, L62K, NPQR, DLWJ, DLWM, DLWQ, NPEK, L62T, NPQS, TLPX, TLPW, EQED, NPEM, L5ZQ, NPQX, DLWZ, DLXI, EQEC and their associated growth rate series. Higher level aggregates including Gross Domestic Product are also affected.

    Data will be revised and fully incorporated into the GFCF and GDP estimates in the Blue Book consistent Quarterly National Accounts release to be published on 30 June 2016.

    Further detail on the expected impact on GFCF and GDP estimates will be provided in the articles listed:

    • "Impact on GDP Current Price annual estimates 1997 to 2011" published 24 February 2016
    • "Impact on GDP Chained Volume Measure annual estimates 1997 to 2011" to be published 23 March 2016
    • "Impact on GDP Current Price and Chained Volume Measure quarterly and annual estimates 1997 to 2014" to be published 20 May 2016
  3. Methods

    Details of the business investment methodology are published in the Quality and Methodology Information. This report describes the intended uses of the estimates presented in this publication, their general quality and the methods used to produce them.

    Composition of the data

    Estimates of GFCF and business investment are produced twice each quarter: an early provisional estimate in month 2 (Second Estimate of GDP) and revised estimates in month 3 (Quarterly National Accounts). The largest component of the estimates is collected via the Quarterly Acquisitions and Disposals of Capital Assets Survey (QCAS). This survey collects data on the acquisition and disposal of capital assets from the manufacturing, other production, construction, distribution and other services sectors. Other main sources for GFCF include data returned by local and central government and public corporations, data on construction, data on new dwellings and improvements to dwellings, and artistic originals. GFCF by local and central government, investment in new dwellings and the costs associated with the transfer of non-produced assets (primarily costs associated with the transfer of land and existing buildings) are excluded from the business investment estimates, but included in total GFCF. The acquisition and disposal of land and existing buildings, including dwellings, is excluded from both the business investment and GFCF estimates.

    More information about the Quarterly Survey of Capital Expenditure can be found in the Summary Quality Report for Quarterly Capital Expenditure Inquiry.

    Definitions and explanations

    Current price (CP)
    Current prices are the actual or estimated recorded monetary value over a defined period. They show the value for each item expressed in terms of the prices of that period.

    Deflation and chained volume measure (CVM)
    Investment is measured across several time periods. The values measured will include both the change in the volume of investment and the effect of the change of prices over the period. Deflation is the process whereby the effect of price change is removed from a set of values.

    Deflation can be done simply by dividing a current price estimate by a deflator, which measures the movement in prices. Doing this creates a constant price series. For deflators to accurately measure the movement in prices they need to accurately reflect changing investment habits. We do this by rebasing deflators.

    Rebasing deflators has a significant effect on a constant price series and would cause significant revisions to the investment data. To avoid this it has been the standard to not rebase deflators annually. This, however, means the deflators are not accurately measuring price changes.

    To resolve this we estimate volumes using chained volume measures, which are derived by linking together (compounding) movements in volumes; calculated using the prices of the previous financial year; and applying the movements to the current price estimates of the reference year. This allows us to remove both the effect of prices and rebasing.

    Seasonally adjusted (SA)
    Seasonal adjustment aids interpretation by removing effects associated with the time of the year or the arrangement of the calendar, which could obscure movements of interest.

    Asset and sector hierarchies
    The diagrams show the institutional and sector hierarchies for GFCF, as set out by the European System of Accounts 2010. The asset hierarchy for business investment is also set out. Business investment is not an internationally defined concept, and the UK’s estimates cannot be compared with those of other countries due to definitional differences.

    A full list of sector codes, for example S.11001 = public corporations, is available in the reference tables.

  4. Further information on methodology

    Further information about the UK National Accounts and the programme of continuous improvement can be found at:

    British Nuclear Fuels Ltd (BNFL)

    In April 2005 nuclear reactors were transferred from British Nuclear Fuels Ltd (BNFL) to the Nuclear Decommissioning Authority (NDA). BNFL is classified as a public corporation in National Accounts and the NDA as a central government body. The capital formation estimates in this release reflect this transfer from the public corporations manufacturing category. The value of the transfer was negative £15.6 billion. The negative value reflects the fact that the reactors are at the end of their productive lives and have large decommissioning and clean-up liabilities. This shows up as a prominent trough in Quarter 2 (Apr to June) 2005 in the general government series, and a complementary peak in Quarter 2 (Apr to June) of the business investment series, which includes investment by public corporations (except dwellings and transfer costs). A more detailed explanation about the transfer can be found in the December 2006 Business Investment release.

    Aircraft imports

    On 1 January 2011 a change was made to the zero-rating of VAT on qualifying aircraft. More information on this can be found on the HMRC website. This may have contributed to the high level of aircraft imports for Quarter 4 (Oct to Dec) 2010 and the low level of aircraft imports for Quarter 1 (Jan to Mar) 2011.

  5. Other relevant sources of data

    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:

  6. Feedback

    We welcome your feedback on the business investment release and data. Please contact gcf@ons.gov.uk. You can also engage in discussion about business investment, and, share information with other users or producers of financial and economic statistics by visiting the Financial and Economic Statistics User Group on the Royal Statistical Society’s StatsUserNet discussion forum.

  7. Publication policy

    Details of the policy governing the release of new data are available from the Statistics Authority or from the Media Relations Office email: media.relations@ons.gov.uk. A list of the names of those given pre-publication access to the contents of this bulletin is also available.

  8. Accessing data

    The business investment statistical bulletin conforms to the standards set out in the UK Statistics Authority Code of Practice.

    Time series used in this bulletin and time series datasets carry unique identifiers for ease of use. More information on these identifiers is available in the article published on 25 August 2011 New series identifiers for GDP(O), IoS and IoP and GCF.

  9. Code of Practice for Official Statistics:

    National Statistics are produced to high professional standards set out in the Code of Practice for Official Statistics. They undergo regular quality assurance reviews to ensure that they meet customer needs. They are produced free from any political interference. © Crown copyright 2016.

  10. Next publication: Thursday 31 March 2016

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Manylion cyswllt ar gyfer y Bwletin ystadegol

Alison McCrae
gcf@ons.gov.uk
Ffôn: +44 (0)1633 455250